Chart 1 – S&P / M2 Money Supply
Chart 1 is a representation of how the S&P500 performance looks when it is adjusted to account for the increases and decreases of the M2 money supply
The M2 Money Supply in isolation can be used as an indication of increasing/decreasing liquidity, thus increases/decreases to M2 Money Supply have a natural history of correlating to similar increases/decreases to the S&P500.
When we divide the S&P500 by the M2 Money Supply we get a visual representation of how the S&P500 is performing accounting for inflows and outflows of liquidity (Chart 1) and this paints a very interesting bullish picture at present.
▫️ In Dec 2023 this chart broke to new highs not seen in 21 years...
▫️ Since 2001 the major resistance zone (red) has rejected every progression higher, that is until Dec 2023 when we broke decisively through this level.
▫️ On the chart major recessions are labelled with red arrows & market corrections with blue arrows.
▫️ In 2007 a rejection from the resistance zone resulted in the Great Financial Crisis (GFC)
▫️ Since GFC there was repeated rejections from the major resistance zone which have coincided with notable corrections for the S&P500 (see blue arrows).
▫️ The most notable of these rejections was the COVID Crash in March 2020.
▫️ At present we have broken through this Major resistance zone and it appears decisive. A pull back to establish support and thereafter a continuation higher should not surprise us. I lean towards a long term bullish environment with some short term but expected pain.
▫️ This chart adds weight to a long term bull market thesis as we have broken above a liquidity resistance levels that held since Sept 2001.