M2 Money Supply rejoins the party
Money supply is up over 5.0% on a 13-week annualized basis for the past three consecutive weeks. If this trend continues, and all indications are that it will, we will see very strong money growth through the end of the year. This could set the stage for a very strong first quarter for the stock market.
Strong money supply growth can boost the stock market but it can also boost inflation, weaken the dollar, and force interest rates higher.
The most recent FOMC meeting notes were posted today and they signaled the first use of the word ‘pause’.
“Some participants judged that downside risks to economic activity or the labor market had diminished. Participants noted that monetary policy would need to balance the risks of easing policy too quickly, thereby possibly hindering further progress on inflation, with the risks of easing policy too slowly, thereby unduly weakening economic activity and employment. In discussing the positioning of monetary policy in response to potential changes in the balance of risks, some participants noted that the Committee could pause its easing of the policy rate and hold it at a restrictive level if inflation remained elevated, and some remarked that policy easing could be accelerated if the labor market turned down or economic activity faltered. Many participants observed that uncertainties concerning the level of the neutral rate of interest complicated the assessment of the degree of restrictiveness of monetary policy and, in their view, made it appropriate to reduce policy restraint gradually.”
Bold is mine.
Meeting probabilities from the CME FedWatch tool have risen slightly. I feel the Fed might disappoint the market in December and hold rates steady. If this were to happen and the market were to sell off, I think it would present a tremendous opportunity to buy. The next FOMC decision is three weeks away, that doesn’t leave much time for Fed speakers to sway the market that they are pausing.
Meanwhile, margin debt use looks strong.
Margin debt use has largely flat-lined. It seems to have built a big base. The stock market peaked in late ‘21. It has now surpassed that milestone yet margin debt use has lagged. I think this provides dry powder for a big bull run.
Hope you all have a happy thanksgiving.
