One Chart every trader should watch

 Recently I watched a trader's Youtube video, and he showed what I considered a very interesting chart.

The overall stock market, in my opinion is disproportionally valued compared to what value American Companies provide the world.    For example, in 2000 .com crash, I do believe America was ahead on automation and providing explosive leading value to the world, yet the market valuations of today in the S&P 500 tower over the market value then.

You can say inflation, but inflation in government terms does not cover assets like stocks or houses, but instead living expenses.  So using inflation adjusted dollars the market is still much higher.

The question is, how can we adjust for the Federal Reserves meddling with US currency?   The youtuber showed me simply take the Stock index and divide it by M2, the total money supply.

Below is two comparison charts, the S&P 500, and S&P 500 / M2, then NASDAQ and NASDAQ/ M2.

I found this quite interesting to show the stock market valuation in terms of the money supply as a better representation vs USD adjusted for interest.

Once again, a deflationary coin like Bitcoin I think in the decade ahead will fair well, as long as the central banks keep the parabolic increase in M2.

As for market, I think we will have a pullback to below SPX 4000, then a counter rally, then into the July-September a material decline.  This will depend on if the Dems can give out free money or not directly to people.  My assumption is they can't, and the decline will come.

S&P 500

S&P 500 / M2
NOTE: If the quantity of money is used to adjust the S&P 500, it is at 2007 highs.

NASDAQ

NASDAQ/M2

This chart I do think illustrates how tech companies did better in the pandemic with more rapid adoption of technologies.

M2 Money supply