Shrinking Money Supply Raises Concerns for SPY Investors

The U.S. money supply is shrinking for the first time since 1949 due to changes in Fed policy, rising interest rates, and financial innovation.

A shrinking money supply often leads to higher interest rates, which can hurt SPY by making bonds more attractive and raising borrowing costs for companies.

However, the link between money supply and stocks is complex, and SPY's top holdings in mega-caps and Berkshire should provide some resilience.

Still, SPY looks overvalued, and history shows a contracting money supply raises the risk of deflationary depression, which would undoubtedly hurt SPY.

While concerning, long-term SPY investors shouldn't panic sell everything due to the money supply contraction, but proper diversification and avoiding overexposure is wise.