U.S. Money Supply Just Completed a Massive 3-Year Reset, and It Could Usher in a Big Change in the Stock Market

Adam Levy, The Motley Fool

Tue, May 13, 2025, 3:55 AM 5 min read

• The market's beardown show successful 2023 and 2024 was driven by conscionable a fistful of stocks.

• Growing wealth proviso volition marque it easier for smaller companies to vie and grow.

• Here's however to put amid accelerating maturation successful the U.S. wealth supply.

• 10 stocks we similar amended than S&P 500 Index ›

Despite a rocky commencement to 2025, the banal marketplace has helped marque a batch of investors wealthier implicit the past fewer years. After climbing 24% successful 2023, the S&P 500 (SNPINDEX: ^GSPC) followed up that show with a 23% summation past year. In 2025, the benchmark scale is down astir 4% arsenic of this writing. Still, that's a cumulative summation of 47%.

However, the years 2023 and 2024 besides witnessed accrued attraction successful banal performances. Just 28% of the components of the S&P 500 outperformed the scale past year, and conscionable 27% outperformed it successful 2023. Those are the 2 lowest readings dating each the mode backmost to 1980. If you didn't person a batch invested successful those stocks, your returns apt suffered.

But diversified investors mightiness beryllium getting immoderate alleviation this year. After 2 years of intensifying concentration, the marketplace is starting to broaden out. And 1 marketplace indicator suggests that the inclination could conscionable beryllium getting started.

Believe it oregon not, the U.S. system is inactive feeling the after-effects of the pandemic. As the system unopen down successful 2020, the Federal Reserve acted to enactment maturation arsenic champion it could. It slashed involvement rates to adjacent zero and held them there. Meanwhile, the U.S. authorities started sending retired stimulus checks to citizens.

The effect was a immense spike successful the U.S. wealth proviso -- specifically, the measurement of wealth proviso known arsenic M2. It's a measurement of each the currency radical person connected hand, the wealth deposited successful checking and savings account, and different short-term investments similar certificates of deposit (CDs) maturing wrong a year.

U.S. M2 wealth proviso deed a highest successful April of 2022. That's a period aft the Federal Reserve started raising involvement rates to combat inflation. As rates climbed, M2 wealth proviso fell. It continued to driblet until precocious 2023, aft the Fed indicated nary further plans for complaint hikes. The betterment has been dilatory arsenic the Fed has been hesitant to chopped rates excessively rapidly and stoke further inflation.

But arsenic rates person travel down slowly, the system continues to chug along, M2 wealth proviso yet reached a caller all-time precocious successful March, 3 years aft the erstwhile peak, with year-over-year M2 maturation accelerating to 4.1%. That maturation could proceed done the remainder of 2025, arsenic the statement calls for 3 much complaint cuts from the Fed earlier the twelvemonth is up.