This chart shows the year-over-year changes in Money Supply ( Monetary Base, M1, and M2 ), in Real (adjusted for inflation) terms, in relation to the S&P 500. Money Supply changes by the Federal Reserve are one of the most important causes of economic trend reversals. Many argue that all booms, busts, bubbles, and crashes are caused by Federal Reserve Money Supply manipulation vis-a-vis the free market. The stock market is dependent on economic trends, so Monetary Supply is an important parameter in stock market timing systems.
NOTE: Use the Legend link above the Real Money Supply chart to hide or display various Money Supply components.
Monetary Base (aka 'Money Base', or 'M0') : The total of all currency (banknotes and coins) and commercial banks' reserves with the central bank. This is the narrowest definition of money supply, consisting only of the most liquid forms of money. Think of the Monetary Base as 'M0'.
M1 : Equals the total of all currency, plus checkable deposits and traveler's checks (assets that can be used to pay bills and debts). M1 does not include the bank reserves included in the Monetary Base.
M2 : Equals M1, plus savings deposits, money market deposits, and time deposits less than $100,000. For many, M2 is the figure to watch in forecasting inflation.
Money Supply vs. Stock Market Chart
( HINT: Click-and-drag left-to-right on a chart to zoom in to a specific date range. Double-click on a chart to zoom back out. )