U.S. Money Supply Has Made History Twice in the Last 3 Years -- Including a First Since the Great Depression -- and It Foreshadows a Wild Ride for Stocks in 2026 | The Motley Fool

With less than 10 calendar days to go before we ring in the new year, it's looking promising that this will be another phenomenal year for Wall Street and the long-term investors who've continued to trust the process. As of the closing bell on Dec. 18, the iconic Dow Jones Industrial Average ( ^DJI +0.38%), widely followed S&P 500 ( ^GSPC +0.88%), and innovation-driven Nasdaq Composite ( ^IXIC +1.31%) have rallied by 13%, 15%, and 19%, respectively. Although investors are likely looking for the artificial intelligence (AI) revolution, quantum computing hype, and the Federal Reserve's rate-easing cycle to fuel additional gains in 2026, the new year may feature a historic bout of volatility, based on what one time-tested economic data point has to say . Image source: Getty Images. M2 money supply has completely rewritten history over the last three years Before digging any further, it's appropriate to mention that just because something has happened in the past, it's not guaranteed to occur in the future. Nevertheless, correlated events often have a way of repeating on Wall Street (albeit not to a "t"), which can help investors position themselves for future gains. Few foundational metrics have a richer history than U.S. money supply . While there are multiple measures of money supply, the two that garner the most attention are M1 and M2. The former is a measure of cash and coins in circulation, as well as demand deposits in checking accounts. Think of it as money that can be spent right now. Meanwhile, M2 accounts for everything in M1 and includes savings accounts, money market accounts, and certificates of deposit below $100,000. It's still money that can be spent, but it requires more effort to get this capital into your hands. It's U.S. M2 money supply that's been rewriting history since 2022. Usually, the M2 money supply chart moves up and to the right with virtually no interruption. In simple terms, a growing economy needs more capital to facilitate transactions over time. WARNING: the Money Supply is officially contracting. 📉 -- Nick Gerli (@nickgerli1) This has only happened 4 previous times in last 150 years. Each time a Depression with double-digit unemployment rates followed. 😬 pic.twitter.com/j3FE532oac March 8, 2023 The post above on social media platform X (formerly Twitter), from Reventure App CEO Nick Gerli, is nearing its third anniversary. However, it holds value in that it shows the year-over-year changes in M2 dating back to 1870. Between April 2022 and October 2023, U.S. M2 money supply fell by 4.76% . This marked the first time since the Great Depression that M2 declined by more than 2% on a year-over-year basis and peak-to-trough basis. The only four previous instances in 156 years where M2 dropped by 2% (or more) on a year-over-year basis correlated with depressions for the U.S. economy and a rough road for Wall Street. Thankfully for investors, the decline from April 2022 to October 2023 ended this dubious streak. At the same time, M2 has bounced...

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