The Next 3 Weeks Could Determine How Stocks Perform This Summer

Apr. 18, 2019 10:05 AM ETDIA, QQQ, SPY12 Comments


  • From a M2 monetary standpoint, weeks 20-22 of each year have the power to set the stage for how stocks perform through the summer.
  • A best-case scenario would see M2 climb for weeks 20 and 21 and retreat less than 1.2% for week 22.
  • A bull market would probably continue in that case into 2020.
  • Worst-case scenario, M2 falls for weeks 20 and 21, continues to fall more than 1.5% for week 22. If that happens, I plan to go short by mid-May.
  • Most likely, something in the middle and more indeterminate will happen, but we'll soon find out.

I've written a lot about how steep changes in the money supply growth rate can predict, and, in my opinion, cause precipitous declines in the stock market. This time I'm going to try to get very specific in what to look for in order to determine what happens past July this year when conditions typically get dangerous for equities. I'll spoil the ending first: The next three weeks of M2 money supply data could determine whether we see smooth sailing for stocks this summer or whether we're going to see a continuation of the bear market we saw late last year or worse. Now, I'll try to explain why and how with hard numbers and how I arrived at them.

A short background: Three serious market declines since 2008 have coincided with either very slow or even absolute shrinkage in the M2 money supply over a quarter. In 2008, the quarterly M2 average money supply shrunk absolutely throughout all of September (data here at table 2). That hasn't happened since. The crash occurred towards the end of that month. The flash crash of August 2015 coincided with the lowest M2 growth since 2008, at just an annual rate of 1% by the end of July. The average is usually around 5% to 6%.

The most recent decline late last year was under slightly different circumstances. M2 growth did not dip below 2% at its lowest last year, but it also had not grown at an annual rate higher than 6% since week 22 of 2017. By comparison, in all of the 5 years previous, M2 growth was above 6% for most of the year. Combined with the massive rally of 2017, there was not enough liquidity added in 2017 and 2018 to sustain new highs and so we saw a sharp decline at the end of 2018.

This article was written by

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A gold-based approach to protecting wealth and profiting off Fed inflation

I invest in the light of Austrian Business Cycle Theory and cover monetary trends for the purpose of timing the credit cycle. My marketplace service The End Game Investor helps subscribers manage the risks of, and profit from the ongoing fiscal and monetary crisis precipitated by the COVID-19 pandemic. I use gold, silver, and associated stocks and investment vehicles in a low-risk high-return setup.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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