The S&P 500 has fallen approximately 3.7% so far in November, and a more severe test may be imminent. Due to U.S. Treasury settlements draining market liquidity, an additional $150 billion is expected to be withdrawn over the next five trading days, raising risks of further declines in the index.

Recent stock market weakness has closely aligned with Treasury settlement dates. Out of nine settlement days since October 30, the S&P 500 has closed lower on seven occasions. Since the debt ceiling was raised in July, the U.S. Treasury has relied on reverse repo facility funds to meet bond issuance needs. Although the facility still held reserves in late October and early November, these balances are now insufficient to absorb the liquidity impact of Treasury settlements.

Risk assets—including stocks and Bitcoin—are bearing the brunt of the liquidity squeeze. As the reverse repo buffer diminishes, settlement funds are directly drawn from reserve accounts, reducing available reserves. With reserves shrinking and Treasury General Account (TGA) balances replenishing, liquidity supporting risk assets is steadily eroding.

**$2 Trillion in Liquidity Already Depleted** Over recent years, Treasury bill issuance has reduced the reverse repo facility by over $2 trillion. As this facility dries up, the growth in Federal Reserve reserve balances—which previously offset much of the quantitative tightening impact—has stalled. Since the debt ceiling resolution in July, the TGA has surged past $900 billion, reverse repo balances have neared zero, and reserve balances have plunged below $3 trillion.

With reverse repos no longer sufficient to cover Treasury settlements, funding must come from elsewhere. Observable data suggests capital is now exiting risk assets—a trend particularly evident since October 30. During this period, the S&P 500 declined on seven out of nine settlement days, averaging a 1.18% drop. On the two settlement days without losses, gains were minimal—just 27 points on October 31 and 6 points on November 12.

While the correlation between market declines and settlement dates could be coincidental, the breakdown of the reverse repo mechanism warrants scrutiny. This pattern may have emerged once reverse repo balances fell below levels accessible to money market funds, forcing settlements to draw directly from bank reserves and risk assets.

**$150 Billion Liquidity Drain Looms** The upcoming Thanksgiving holiday shortens this trading week—markets close Thursday and operate on a half-day Friday—potentially exacerbating thin liquidity. However, the Treasury plans to settle $14 billion in bills on November 25, followed by $47 billion in coupon-bearing Treasuries and $5 billion in bills on November 28. More critically, nearly $84 billion in coupon Treasuries will settle on December 1 (next Monday).

In total, nearly $150 billion in Treasury settlements will occur over five trading days, extracting massive cash from markets just as month-end bank balance adjustments seasonally tighten liquidity. Notably, Bitcoin’s struggles appear synchronized with declining Fed reserves—a ripple effect from TGA replenishment. Given stocks’ historical tendency to follow Bitcoin’s lead, the cryptocurrency now serves as a key liquidity barometer.

If Treasury settlement dates are indeed driving recent volatility, investors may be witnessing not AI-driven or technical fluctuations but a genuine deleveraging process. This could signal that existing liquidity can no longer sustain current risk-asset valuations, suggesting the market adjustment has only just begun.

While the S&P 500’s seven declines over nine settlement days since October 30 constitute a small sample size—possibly random—another challenging week would not surprise. Without a rebound in reserve levels, the strain will persist. With the Fed’s next meeting not until mid-December, U.S. stocks may face a turbulent year-end.