S&P 500: The Big Picture II
Actualizado
Dividing SPX by the money supply (M2) removes distortions caused by changes in the supply of money (dollars). (1) Now, suddenly the skyrocketing SPX surge following the Covid crater isn't so insane, in fact, it has yet to recover to pre-Covid levels! Dividing by M2 arguably gives a more realistic view of equities, revealing the % of money out there that people are willing to invest in equities. That's a meaningful measure of how much society values such investment.
By SPX/M2, the SPX has not overshot its post-Great Recession channel and further upward movement appears plausible within that time-tested channel. This is in contrast to the same big-picture analysis I last posted. (2) I'm not sure which is more plausible, but I'm a bit enchanted by /M2 and so am inclined to suspect this might be the better predictive model.
SPX/M2 also seems to clarify a four-year-wave cycle that corresponds conspicuously to US Presidential terms. In this model I propose a continuity of that pattern. All of course highly speculative, but with *apparent* plausibility.
(1) fred.stlouisfed.org/series/M2SL
(2)
By SPX/M2, the SPX has not overshot its post-Great Recession channel and further upward movement appears plausible within that time-tested channel. This is in contrast to the same big-picture analysis I last posted. (2) I'm not sure which is more plausible, but I'm a bit enchanted by /M2 and so am inclined to suspect this might be the better predictive model.
SPX/M2 also seems to clarify a four-year-wave cycle that corresponds conspicuously to US Presidential terms. In this model I propose a continuity of that pattern. All of course highly speculative, but with *apparent* plausibility.
(1) fred.stlouisfed.org/series/M2SL
(2)
Nota
Confirming the underlying thesis here, that increasing M2 has given a significant boost to equity prices, an article on Zacks states:“Stock prices tend to move higher when the money supply in an economy is high. Plenty of money circulating in the economy both makes more money available to invest in stocks and also makes alternative investment instruments, such as bonds less attractive.” finance.zacks.com/relationship-between-money-supply-stock-prices-7764.html
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