U.S. Money Supply Is Doing Something So Rare That It Hasn't Happened Since The Great Depression -- And A Big Move...

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Over the previous four years, Wall Street has been a stomping ground for volatility. In successive years, beginning in 2020, the ageless Dow Jones Industrial Average ( ^DJI 1.18% ) , broad-based S⁘P 500 ( ^GSPC 1.26% ) , and growth stock-driven Nasdaq Composite ( ^IXIC 1.99% ) have traded off bear and bull markets .

Although the stock market has been a proven wealth creator over the long run, predicting where it'll head in the days, weeks, or months to come simply can't be done with any concrete accuracy. Nevertheless, it doesn't stop investors from trying to forecast the future to gain an edge.

While nothing is set in stone over the short run, a select group of predictive indicators and money-based metrics have a remarkable track record of "forecasting" shifts in the U.S. economy and/or the stock market.

One of these tools, which appears to be a forewarning of a big move to come in stocks, is the U.S. money supply.

Though there are five different measures of money supply, the two with the greatest importance are M1 and M2. The former takes into account all the cash and coins in circulation, as well as demand deposits in a checking account. It's easily accessible capital that can be spent at the proverbial snap of a finger.

On the other hand, M2 utilizes everything in M1 and adds in money market accounts, savings accounts, and certificates of deposit (CDs) below $100,000. We're still talking about capital that can be spent with relative ease, but some extra steps are required to get to it. It's this metric, the M2 money supply, that is raising red flags for the U.S. economy and Wall Street.

What's interesting about the M2 money supply garnering attention is that it's a metric most economists tend to ignore. It's been steadily rising for so many decades that it's almost taken for granted that the money supply will expand as the U.S. economy grows over time.

Based on data from the Board of Governors of the Federal Reserve, the M2 money supply peaked in April 2022 at $21.722 trillion. As of March 2024, M2 came in at $20.841 trillion. While this might look like a fairly tame decline of $881 billion (4.06%) spanning roughly two years, it represents the first decline of at least 2% in M2 money supply since the Great Depression .