The Treasury General Account (TGA) is effectively the US Treasury’s checking account held at the Fed. The changing balance of the TGA affects the financial system’s liquidity, thereby influencing broader economic and market activity. For example, when the Treasury raises its TGA balances by issuing more debt and or collecting more tax revenue than it spends, that moves from the banking system into the Fed.
The money can no longer be lent out or deployed in markets; thus, liquidity tightens. Conversely, when the Treasury draws down its TGA by spending more than it borrows or collects in tax revenue, that cash flows into the banking system, increasing reserves and liquidity.
The impact on liquidity from changing TGA balances was most noticeable in 2020. With significant amounts of crisis-related debt issuance, the Treasury built the TGA to nearly $1.8 trillion in mid-2020, then spent it down rapidly, injecting hundreds of billions into the system. Markets surged, and economic activity picked up. That event was an anomaly, but it showed how large shifts in the TGA can impact the economy and markets.
Most often, the Treasury increases its TGA ahead of potential debt-ceiling dates. Once those dates have elapsed, the Treasury rapidly runs down the TGA balances.
As we share below, the TGA is now at its highest level since 2020. Bear in mind that part of the recent increase is due to tax revenue from April 15th. That said, the balances were already high before the boost. From an investor’s perspective, it’s not important why they are doing it; what matters is understanding that when they reverse course, the economy and markets will benefit from a shot of liquidity.
Breadth Is Not As Bad As It Seems
The absolute-relative analysis continues to indicate poor breadth despite record highs. But is it as bad as it seems?
Making a case for bad breadth, the first graph below shows that the technology sector, led by chipmakers, has become very overbought on both a relative and an absolute basis. At the same time, all of the other sectors are either at fair value or oversold relative to the . Another sign of poor breadth appears in the factor analysis shown in the second graphic. The large gap between the and indicates that a few companies are outperforming the vast majority of stocks.
Despite the evidence of poor breadth, note that the absolute scores are overbought for all but one sector. The rally is being supported by most stocks, but the chipmakers, specifically those producing CPUs, not GPUs, are leading the way. Without those stocks, the market would still be rallying and potentially near or at record highs. Specific chipmakers, such as , , and , have grossly outperformed the market. Going forward, it’s quite possible that they correct on a relative basis (underperform) while other technology stocks and sectors drive the market higher.
We can see if that thesis occurs via the Momentum factor ETF. The second graphic shows that it is the most overbought factor on both a relative and an absolute basis. The third graphic, breaking down the factor’s stocks, shows that outperforming chipmakers, , AVGO, MU, and , comprise half of the factor’s top ten holdings. The , including the big CPU chipmakers, is up 35% over the last 20 trading days. At the same time, the three largest stocks by market cap, , , and , have flat to negative relative scores.
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