S&P 500 / M2
Selected range · January 1959 — May 2026
About this chart
The S&P 500-to-M2 Ratio compares the level of the U.S. stock market with the size of the U.S. M2 money stock.
The numerator is the monthly S&P 500 index level. The denominator is the seasonally adjusted M2 money stock, measured in billions of U.S. dollars.
M2 is a broad measure of money held in relatively liquid forms. It includes M1 together with additional components such as small-denomination time deposits and balances in retail money market funds.
The ratio provides a long-term comparison between equity-market levels and the amount of money and liquid balances within the U.S. financial system.
The ratio rises when the S&P 500 increases faster than M2. It can also rise when M2 contracts or grows more slowly while the stock market remains stable or continues to increase.
A higher ratio means that the S&P 500 index is relatively elevated compared with the M2 money stock. This may occur during periods of strong corporate earnings, expanding equity valuations, slower monetary growth, or greater investor preference for equities.
The ratio falls when M2 grows faster than the S&P 500 or when equities weaken relative to the money stock.
A lower ratio means that M2 is relatively elevated compared with the S&P 500 index. This may occur during periods of rapid monetary expansion, weaker equity markets, financial stress, or more cautious investor behaviour.
The ratio should not be interpreted as the proportion of M2 invested in the stock market. The S&P 500 input is an index level rather than the total market value of U.S. equities, while M2 is a dollar-denominated monetary aggregate.
The absolute ratio is therefore affected by the units and construction of both series. Its primary purpose is to show how their historical relationship has changed rather than to provide a directly meaningful economic multiple.
The chart compares the S&P 500-to-M2 Ratio with its arithmetic historical average.
A reading above the historical average means that the S&P 500 index is relatively elevated compared with M2 versus the full historical sample.
A reading below the historical average means that M2 is relatively elevated compared with the S&P 500 index.
The deviation line expresses how far the current ratio is above or below its historical average as a percentage.
A deviation of 0% means that the ratio is equal to its historical average.
A positive deviation means that the S&P 500 is relatively stronger than M2 compared with the historical average.
A negative deviation means that M2 is relatively stronger than the S&P 500 compared with the historical average.
The standard-deviation zones show whether the current relationship is relatively common or historically unusual. Values farther above or below 0% represent less common historical relationships between the equity index and the money stock.
The ratio can provide long-term context about the relationship between equity-market levels and monetary growth. It should not be interpreted as a direct equity valuation model, a measure of market liquidity available for stocks, or a market-timing signal.
Limitations
- The numerator is the S&P 500 index level, not total U.S. stock-market capitalization, while M2 is a monetary aggregate measured in billions of dollars.
- The ratio therefore does not show what percentage of the money supply is invested in equities or how much money is available specifically for stock purchases.
- Changes in M2 do not translate mechanically into equity demand because the relationship also depends on credit creation, interest rates, saving behaviour, financial conditions, and money velocity.
- The Federal Reserve’s May 2020 redefinition of M1 and M2 introduces a structural break that limits comparability across the full historical series.
- The full-sample historical average and standard-deviation zones are retrospective, because later observations influence the benchmark applied to earlier periods.
- Structural changes in monetary policy, banking, inflation, financial markets, and the composition of the S&P 500 may alter the relationship over time.
- An unusually high or low reading can persist and should not be interpreted as a precise valuation estimate or a market-timing signal.
Methodology
The S&P 500-to-M2 Ratio is calculated by dividing the monthly S&P 500 index level by the seasonally adjusted M2 money stock.
The M2 input is measured in billions of U.S. dollars. The resulting ratio is therefore a relative historical indicator rather than a percentage or a directly interpretable valuation multiple. The model calculates the arithmetic historical average of the complete monthly S&P 500-to-M2 Ratio series. The percentage deviation measures how far each ratio observation is above or below that historical average. The standard deviation of the full historical percentage-deviation series is used to create the ±1σ, ±2σ and ±3σ zones around 0%. The z-score divides the current percentage deviation by that standard deviation, expressing the current relationship in standardized historical units. The model uses monthly observations beginning in January 1959 and continues through May 2026 in the current workbook.
Data sources
Monthly U.S. stock-market index level used as the equity component of the ratio
Range: January 1959 to the latest available observation used by the model
Source: DataHub, Standard and Poor’s 500 Index Data; https://datahub.io/core/s-and-p-500
M2 money stock, seasonally adjusted, billions of U.S. dollars
Range: January 1959 to the latest available observation used by the model
Source: Board of Governors of the Federal Reserve System, M2 [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/M2SL