Gold, stock market, and big cakes are all soaring: Is the bull market really coming?

Author: Crypto Tuanzi

Financial markets hit new highs, the S&P 500 index reached 5,735 points, and the price of gold exceeded $2,670 per ounce. The central bank's loose policy and liquidity supply have driven asset gains, and the future market needs to be continuously observed.

Financial markets hit new highs: gold and stock markets soar

Recently, global financial assets have hit record highs. Among them, the S&P 500 index (S&P 500) reached a record high of 5,735 points, and the price of gold also soared to $2,670 per ounce. So far this year, the price of gold has risen by more than 30%, making 2024 the best year for gold since the beginning of this century. This surge in asset prices has attracted the market's attention to the driving factors behind it.

Liquidity and money supply: the dual engines driving the market

In-depth analysis found that the loose monetary policy and liquidity supply of central banks around the world are the main reasons for the rise in the market. As of September 25, the total balance sheet of the world's top 15 central banks has exceeded US$31 trillion, a level last seen in April 2024. This number has continued to rise since July, reflecting the massive monetary stimulus implemented by central banks in response to economic challenges and uncertainties.

China’s massive monetary easing, combined with the U.S. Federal Reserve’s aggressive 50 basis point rate cut, further fueled the market’s upward momentum. The market is pricing in a 47.2% chance of another 50 basis point rate cut at the November 7 meeting, which would bring the federal benchmark rate range down to 4.25% to 4.50%.

Another key indicator is the M2 money supply, which includes cash in circulation, deposits and money market funds. According to Trading Economics, the M2 money supply has continued to grow every month since February 2024. In August alone, M2 grew by nearly 1% month-over-month, indicating continued monetary expansion. The increase in money supply has played a key role in supporting asset prices.

Historical Correlation: Money Supply and Market Performance

Historical data shows a strong positive correlation between the S&P 500 and M2 money supply. Over the past five years, the two have risen in tandem. For example, during the COVID-19 pandemic in early 2020, M2 bottomed out at $15.2 trillion in February, followed by the S&P 500 falling to a low of approximately 2,409 in March. A similar situation occurred in October 2023, when monetary policy tightening brought M2 down to $21 trillion, and shortly thereafter the S&P 500 also fell to 4,117. This correlation highlights the critical role of liquidity in stock market performance. Over the past five years, M2 money supply has grown at a compound annual growth rate (CAGR) of 7%, while the S&P 500 has grown at a CAGR of 14%. While this represents strong performance, it is still surpassed by Bitcoin's 50% CAGR over the same period. Bitcoin's high growth rate reflects its growing prominence as an asset class that often benefits from the same liquidity dynamics as traditional markets.

Can the market boom continue?

The expansionary policies of the central bank combined with the rising money supply are driving up the prices of various assets. Whether it is gold, the S&P 500 index, or Bitcoin, they all show a clear correlation with monetary indicators such as M2, which shows that liquidity remains a key driver of asset performance in the current economy. As long as the central bank continues to provide support, financial markets may continue to rise. However, the sustainability of this trend remains a question that needs to be paid attention to in the future.