Reverse Repo vs S&P 500

The Fed Overnight Reverse Repo facility (ON RRP) was activated as a daily auction in September 2013 to put a floor under money-market rates. It sat near zero through 2017-2020, then exploded from $10 billion at year-end 2020 to $2.554 trillion at the December 30, 2022 peak (a year-end surge driven by usual quarter-end pressures plus the fed-funds-target lift to 4.25-4.50 percent). The drain from peak to near-zero has been one of the most-watched liquidity sequences of the 2020s, because the policy-watch thesis (articulated by Goldman's Marquee, JPMorgan's Treasury Markets and Federal Reserve Bank of Kansas City research) was that RRP-sourced liquidity was the buffer absorbing quantitative tightening before bank reserves had to drain. The pair tests an institutional thesis published most cleanly by the Federal Reserve Bank of Kansas City in November 2023 and updated through 2025: as long as RRP balances were available, QT could continue without stressing reserves; once RRP drained to under $200 billion, any additional QT would press directly on reserves. The April 2026 reading of $0.7 billion (effectively zero, with quarter-end blips) is the live test of that thesis, and the SPY advance through the entire drain provides the empirical answer that the thesis was largely correct: the buffer absorbed the QT without producing the equity weakness simpler liquidity models had predicted. Reading the pair in isolation produces the simplest and most misleading version of the question; reading it inside a multi-input net-liquidity composite is the institutionally rigorous frame, and is what makes the pair operationally useful rather than a frequently-cited but rarely-actionable indicator.

December 30, 2022: RRP $2.554 trillion peak. SPY $381.34 close. The peak coincided with the worst SPY year since 2008 (negative 18 percent total return for 2022). Mid-2023: RRP $1.95 trillion average. SPY rallied 26 percent over H1 2023 despite the regional banking stress (March 2023 SVB and Signature failures), refuting the simple thesis that draining liquidity would hold equities back. End 2023: RRP $700 billion. SPY $476.51, up 24.7 percent for the year. Mid-2024: RRP $400 billion (the Wolf Street widely-cited reading), SPY 23 percent ahead year-to-date. December 2024: Fed trimmed the ON RRP rate by 5 bps on top of the rate cut on December 18, 2024, sending RRP to $98 billion within a week, the lowest since April 2021. April 29, 2026: RRP at $0.7 billion, SPY at $568.40 (up 49.1 percent from the December 30, 2022 close). The empirical record is decisive: RRP drained from $2.55 trillion to near-zero, a $2.55 trillion liquidity withdrawal, and SPY advanced 49.1 percent over the same window. The simplest version of the QT-as-equity-headwind thesis is therefore falsified at the multi-year horizon, and any future analysis of the period needs to account for the structural reasons the drain did not produce the predicted equity weakness. The 28-month decline of 99.97 percent of facility balance ranks as the longest sustained liquidity withdrawal of the post-2008 era, dwarfing the 2017-2019 QT episode in both pace and magnitude, and producing the cleanest empirical record available for testing liquidity-versus-equity theses.