U.S. M2 money supply hits all-time high with historic correlation to economic downturns

From Nasdaq: 2025-05-03 03:06:00

1. Despite the long-term superior performance of stocks over other asset classes like Treasury bonds and real estate, recent market volatility has seen the Dow Jones, S&P 500, and Nasdaq vacillate wildly, with historic percentage drops and point increases.
2. The U.S. M2 money supply hit an all-time high in March 2025, showing a nearly 4% year-over-year expansion. However, a significant contraction in M2 supply between April 2022 and October 2023 raises concerns about potential economic weakness.
3. Historical data reveals a strong correlation between notable declines in M2 money supply and U.S. economic downturns, with only five instances of significant declines coinciding with periods of depression and high unemployment.
4. While downturns in the economy and stock market may be short-lived, investors who maintain a long-term perspective and leverage time as an ally have a higher probability of success, as evidenced by the historical data on bull and bear markets.
5. Bank of America research shows that approximately two-thirds of the S&P 500’s peak-to-trough drawdowns occur after an official recession is declared, highlighting the impact of corporate earnings growth during economic downturns on stock valuations.

Read more at Nasdaq: U.S. Money Supply Just Made History! But It’s a Recent Shift — the First Since the Great Depression — That Historically Leads to a Big Move in Stocks.