U.S. Money Supply Sees First Drop Since Great Depression, Stoking Recession Worries But Long-Term Hope Still Remains

U.S. money supply (M2) has contracted 4.29% since March 2022, the first meaningful decline since the Great Depression. Historically, significant M2 declines have preceded economic depressions.

The 4.29% drop in M2 may just be a reversion to the mean after huge expansion during COVID. Modern monetary policy could prevent a depression today.

However, declining accessible money typically means consumers pull back spending, especially with high inflation, often leading to a recession.

Recessions tend to negatively impact corporate earnings and stock prices. But they are usually short, giving way to long expansions.

Time is on investors' side. Despite alarming money supply data, stocks recoup losses and reach new highs over the long run across business cycles.