S&P 500 Has a Lot More Room to Grow, Too Early for a Recession.
If you look at the S&P500 index (
SPX
) chart, you find that it has reached, and even surpassed, the previous high at 3393.5 which occurred just before the CV19 drop in March 2020. The last close on 31 December 2020 was at 3760. However, many attribute the recent V-shaped recovery to the Quantitative Easing scheme by the Federal Reserve, which makes a lot of sense. Printing money accelerates inflation and raises the prices of everything including stocks. If you haven't yet, look at the M2 Money Supply (
WM2NS
) (chart below) to get a feel for the scale of the increase in money supply during 2020 relative to the past 20 years.
Below is the chart of SPX for the past 20 years.
Below is the chart of M2 money supply for the past 20 years. Notice the jump in the last year.
This analysis looks instead at the chart of SPX divided by M2. That gives us an inflation-adjusted look at SPX. We notice that the index has not yet achieved the V-shaped recovery. It is 2/3 of the way there. What's more, even the Feb 2020 high is not higher than the 2007 high that was just before the house mortgage crisis, and the latter is not higher than the dot-com bubble high in 2000. This simply means that making money through the S&P500 is not really making money, not really increasing the value of your holdings, but it is rather a mere hedge against inflation; and a failed hedge at that. It hasn't even achieved previous highs.
With all that being said, I do not believe that the March 2020 correction was anything to be scared of. I think we will achieve the high that occurred just before that drop. I say do not fear a major correction, let alone a recession, before we reach the top of the parallel channel as the arc arrow indicates. And keep your eyes only on the inflation-adjusted chart of SPX.
SPX
) chart, you find that it has reached, and even surpassed, the previous high at 3393.5 which occurred just before the CV19 drop in March 2020. The last close on 31 December 2020 was at 3760. However, many attribute the recent V-shaped recovery to the Quantitative Easing scheme by the Federal Reserve, which makes a lot of sense. Printing money accelerates inflation and raises the prices of everything including stocks. If you haven't yet, look at the M2 Money Supply (
WM2NS
) (chart below) to get a feel for the scale of the increase in money supply during 2020 relative to the past 20 years. Below is the chart of SPX for the past 20 years.
Below is the chart of M2 money supply for the past 20 years. Notice the jump in the last year.
This analysis looks instead at the chart of SPX divided by M2. That gives us an inflation-adjusted look at SPX. We notice that the index has not yet achieved the V-shaped recovery. It is 2/3 of the way there. What's more, even the Feb 2020 high is not higher than the 2007 high that was just before the house mortgage crisis, and the latter is not higher than the dot-com bubble high in 2000. This simply means that making money through the S&P500 is not really making money, not really increasing the value of your holdings, but it is rather a mere hedge against inflation; and a failed hedge at that. It hasn't even achieved previous highs.
With all that being said, I do not believe that the March 2020 correction was anything to be scared of. I think we will achieve the high that occurred just before that drop. I say do not fear a major correction, let alone a recession, before we reach the top of the parallel channel as the arc arrow indicates. And keep your eyes only on the inflation-adjusted chart of SPX.
Comment:
This drop coincides with the top of March 2020 as well as the top of 2008.
This drop coincides with the top of March 2020 as well as the top of 2008.
Comment:
We are now above the 2008 top and actually appear to be using it as support. We have to wait for the candle of January to close in order to confirm this.
Comment:
My initial prediction when I published this a year ago was that SPX/M2 hits the 1.0 Fib line, gets rejected, and heads to the 0.5 Fib line. Right now, we are heading to the 0.5 fib line with no obvious support in the way.
We're right on track, and still more room to grow.