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for the First Time Since the Great Depression, and It Implies a Big Move in Stocks Is on the Way
• Now is not the time to rush into the stock market, according to Mark Mobius.
• The elite investor cautioned against stocks amid a decline in the money supply. U.S. Money Supply Is Making History
• Investors should be keeping at least a fifth of their portfolio in cash
• In a recent interview with Tommy Trader to keep at least 20% of their portfolio in cash while they wait for a buying opportunity. Mobius cautioned investors to be alert as a troubling signal flashes in the economy.
• M2 money supply surged during the pandemic but has contracted for most of the past few years, with the total stock of M2 now 3% lower from its peak several years ago, according to Federal Reserve data.
• That’s the largest drawdown in the total money supply seen in nearly a century, Mobius said, adding that stock bulls shouldn’t get too excited over the latest rally in stocks.
• "This decline is historically significant because M2 had not seen such a drop in over 90 years," Mobius said. "The main concern is that if the M2 money supply has declined since April 2022 and hasn’t kept pace with economic growth, there could be less capital available for the discretionary spending that has driven the current economic expansion and bull market on Wall Street."
• Other forecasters have flagged the contraction in the money supply as a potential sign of an economic slowdown. The M2 money supply has only contracted four times in total over the past century and was followed by a recession in each instance, according to veteran Trader www.turbooptiontrading.com
The M2 money supply can significantly impact tech stocks in several ways:
1. Liquidity and Investment: An increase in the M2 money supply generally means more liquidity in the economy. This can lead to lower interest rates, making borrowing cheaper. Tech companies, which often rely on borrowing for growth and innovation, benefit from this environment1.
2. Valuation Multiples: Tech stocks are often valued based on future earnings potential. When the money supply is abundant, investors are more willing to pay higher multiples for future growth, driving up tech stock prices2.
3. Consumer Spending: More money in the economy can lead to increased consumer spending. For tech companies, this can translate to higher sales of products and services, boosting their revenues and stock prices2.
4. Market Sentiment: A growing money supply can improve overall market sentiment, leading to increased investment in riskier assets like tech stocks. Conversely, a contraction in the money supply can lead to caution among investors, potentially causing tech stock prices to drop3.
5. Inflation and Interest Rates: If an increase in the M2 money supply leads to higher inflation, the Federal Reserve might raise interest rates to combat it. Higher interest rates can negatively impact tech stocks, as the cost of borrowing increases and future earnings are discounted more heavily3.
Understanding these dynamics can help you navigate the tech sector more effectively. Are there any specific tech stocks or trends you’re currently watching?
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