S&P 500 ÷ M2
The S&P 500 measured against the money supply.
The S&P 500 ÷ M2 is 0.327 as of July 8, 2026 — 2.6 standard deviations above its historical mean of 0.158, a Strongly Overvalued reading.
Historical crashes marked on this chart (6)
The dashed red lines flag major US market crashes within this indicator’s history. Here is what happened at each and what followed.
- Kennedy Slide (1962)
- A rapid spring 1962 sell-off (the 'Flash Crash of 1962') wiped roughly 27% off the S&P 500 amid fears over the economy and a clash with steelmakers. Markets stabilized and recovered within about a year.
- 1973–74 oil crisis bear market (1973)
- The OPEC oil embargo, Watergate, and stagflation drove a roughly 48% decline over nearly two years — the worst bear market since the 1930s. Stocks took years to recover in real terms.
- Black Monday (1987)
- On October 19, 1987 the Dow fell 22.6% in a single day — the worst one-day drop in history — driven partly by program trading. The economy avoided recession and markets recovered within two years.
- Dot-com crash (2000)
- The tech bubble burst in March 2000; the Nasdaq lost about 78% by 2002 as internet valuations collapsed. A mild recession followed and tech stocks took roughly 15 years to reclaim their peak.
- Global Financial Crisis (2008)
- The subprime mortgage meltdown and Lehman Brothers' collapse cut the S&P 500 about 57% into March 2009. It triggered the Great Recession, sweeping bailouts, and a decade of near-zero interest rates.
- COVID crash (2020)
- Pandemic lockdowns caused the fastest bear market ever in February–March 2020, a roughly 34% plunge in weeks. Unprecedented Fed and fiscal stimulus sparked a rapid recovery to new highs.
Overview
The S&P 500 to M2 ratio divides the S&P 500 index by the M2 money supply to adjust stock valuations for monetary inflation. When central banks expand the money supply, nominal 'record highs' can be misleading — this ratio shows whether US stocks are actually rising faster than the amount of money circulating in the economy, or simply being lifted by it. Because both the index and the money supply grow over time, it is judged against a long-run exponential trend rather than a fixed level.
How to read it
Read this one as a trend, not an absolute level. When the ratio sits well above its long-run exponential trend, the S&P 500 has outrun the growth of the money supply and looks expensive; below trend suggests stocks are cheap relative to the money sloshing through the system.
How it's calculated
- Take the monthly S&P 500 index level (long history sourced from Shiller/multpl).
- Divide by M2 money stock (billions of dollars) from the Federal Reserve H.6 release.
- Compare against an exponential trend with standard-deviation bands.
Criticisms
- M2's definition has changed over time (notably in 2020), creating discontinuities.
- There is no universally agreed 'normal' level for this ratio, so it is best read as a trend.
Frequently asked questions
- What is a normal S&P 500 to M2 ratio?
- There is no fixed "fair" level, so it is read as a trend: when the ratio climbs well above its long-run exponential trend, stocks are rising faster than the money supply and look stretched; below trend is cheaper.
- Why divide the S&P 500 by the money supply?
- It adjusts stock prices for monetary inflation. When central banks expand M2, nominal "record highs" can be misleading — dividing by M2 shows whether stocks are truly gaining ground or just floating up on more money.
- What is M2?
- M2 is a broad measure of the US money supply: cash, checking and savings deposits, and other near-money. The Federal Reserve publishes it in the H.6 release.