While gold, oil, real estate, and Treasury bonds have all given investors strong nominal returns, none have come close to matching the annualized average returns that stocks have provided over the past century. 

Nevertheless, this does not deter investors from attempting the impractical. There is no economic indicator or data point that can definitively forecast the path that the Dow, S&P 500, and Nasdaq Composite will take in the near future, but there are a very limited number of metrics and forecasting tools that have historically shown a strong correlation with moves higher and lower in the major stock indexes.

This Is A First For The US Money Supply In Nine Decades

M1 and M2, two of the five money supply metrics, are typically the subjects of the greatest attention from economists and the investment community.

The quantity of coins and currency in circulation, as well as demand deposits made into a checking account, are measured by M1.

It’s money that you can easily access and spend right now. The M2 money supply, on the other hand, includes certificates of deposit (CDs) under $100,000 in addition to accounting for all of the M1 money supply. You can still access this money, but it will require more effort on your part to do so.

Due to its consistent growth throughout time, the M2 money supply is often overlooked by economists and investors. Long-term economic growth in the United States means that more cash and coins are inevitably required to complete transactions.

US Economy Suffered

However, the U.S. economy and stock market have historically suffered after those incredibly few occasions when a significant drop in the M2 money supply has been noted.

The M2 money supply peaked in March 2022, or two years ago, at about $21.71 trillion. According to the Federal Reserve System’s Board of Governors’ most recent monthly data release, M2 reached $20.78 trillion in February 2024.

This indicates a rather slight 0.5% year-over-year fall, but a more noticeable 4.29% decline since March 2022, as you can see in the following figure. Additionally, since the Great Depression, this is the first significant decline in M2 that anyone has seen.