(Bloomberg) — A measure of U.S. financial liquidity whose declines foreshadowed two of the decade’s worst equity routs is flashing alarms even before the Federal Reserve embarks on its planned winding down of asset purchases.

The signal is obscure, but has sent meaningful signs in the past. Roughly speaking, it’s the gap between the rates of growth in money supply and gross domestic product, an indicator known to eco-geeks as Marshallian K. It just turned negative for the first time since 2018, meaning GDP is rising faster than the government’s M2 account.

The shortfall comes from an expanding economy that’s quickly depleting the nation’s available money. The deficit could become a problem for markets at a time when excess liquidity is seen as underpinning rallies in everything from Bitcoin to meme stocks.

“Put another way, the recovering economy is now drinking from a punch bowl that the stock market once had all to itself,” Doug Ramsey, Leuthold Group’s chief investment officer, wrote in a note last week.

How big a threat is this? While stocks kept rising during frequent negative Marshallian K readings in the 1990s, the pattern since the 2008 global financial crisis — a period when the central bank was in what Ramsey calls a “perpetual crisis mode” — begs for caution.

The Marshallian K fell below zero in 2010, a year when the S&P 500 Index suffered a 16% correction. A similar dip in 2018 portended a selloff that almost killed that bull market.

The Leuthold study is the latest attempt to handicap the market’s outlook from the perspective of liquidity. But not everyone is worried. In June, research from UBS Group AG showed that should the Fed turn off the spigot on its annual $1.4 trillion in quantitative-easing spending, the hit to the S&P 500 would be a paltry 3% decline in prices.

In 2013, when the Fed’s announcement on a reduction in stimulus sparked a taper tantrum that sent 10-year Treasury yields skyward, the S&P 500 pulled back almost 6% from its May peak that year. But stocks staged a full recovery within weeks and went on with a rally that eventually lifted the index 30% for the whole year.

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Skeptics, however, are quick to point out one big difference: equity valuations.

“Back then, the stock market was trading at 15 times earnings. Now it’s 22 times earnings,” Matt Maley, chief market strategist for Miller Tabak + Co., said in an interview on Bloomberg TV with Caroline Hyde. “It will be hard for the market to ignore it this time around.”

For now, a liquidity drain suggested by the Marshallian K data has done little damage to the market, at least on the index level. The S&P 500 is poised for a seventh straight monthly gain, reaching all-time highs almost every week.

But Ramsey warns investors shouldn’t let their guard down. While the broad market has been strong — the S&P 500 closed Wednesday at a record for the 46th time this year — fewer stocks are participating in the latest leg up. This could be blamed on falling liquidity, he says, and the days of abundant cash floating all stocks are likely gone.

The Marshallian K indicator just slumped into negative territory faster than ever. During the second quarter, M2 money expanded 12.7% from a year ago, trailing the nominal GDP growth rate of 16.7%. That came after four quarters of excessive liquidity where the spread stayed above 20 percentage points.

“The Marshallian K now shows liquidity not only deteriorating but actually contracting — and at a time when hopes (as embedded in valuations) have never been higher,” Ramsey said. “If the Fed can drawdown QE in the next year without triggering a decline of those levels, it will truly have achieved something remarkable. But we’d rather invest based on the probable.”

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