U.S. Stocks' Money Ratio Reaches Dot-Com Peaks Amid Volatility and Slow Liquidity

U.S. equities now command more than three dollars of market value for every dollar of broad money in circulation. October 2025 data from MacroMicro place the Wilshire 5000-to-M2 gauge at about 3.06, or roughly 306 %. The figure indicates that total domestic stock-market capitalization has reached more than three times the Federal Reserve’s M2 money stock.

The ratio has climbed toward record territory during 2025. Commentary early in the year cited readings near 290 %, and the gauge later moved above 3.00 as equity prices advanced. The latest peak arrives while money growth is far slower than during the immediate post-pandemic period.

The main implication is that equity prices are capitalizing an ever-larger share of the nation’s liquidity stock. When that relationship stretches, historical stock-to-money analyses summarized by NelsonCorp suggest that either broad money growth must accelerate or equity valuations must adjust over time.

The ratio has therefore become a focus for analysts who want to evaluate how much of the available money stock is represented by public equity prices.

Liquidity Stretched: Reading the Ratio

Broad money, labeled M2, aggregates components such as cash, liquid deposits and certain retail money-market funds. Data from FRED show seasonally adjusted M2 near 22.3 trillion dollars as of October 2025. The Wilshire 5000 is a broad index intended to capture the market value of U.S. companies with freely traded shares. Dividing the index’s aggregate capitalization by M2 yields one version of the stock-to-money ratio.

Analysts use this metric because it controls for the liquidity backdrop that supports activity such as margin borrowing, share buybacks and retirement contributions. Each uptick implies investors are willing to pay more equity value per unit of readily available money.

An elevated reading therefore signals reduced capacity to absorb negative surprises if earnings weaken or credit conditions tighten, within this framework.

There are important caveats. The ratio does not identify exact turning points, and its main contribution is to flag conditions that have historically led to softer long-run returns. NelsonCorp Wealth Management examined nearly a century of S&P 500 and M2 data and reported that the top quintile of S&P 500/M2 observations was followed by significantly lower subsequent S&P 500 returns than bottom-quintile readings, using their chosen sample and methodology.

Global work points to a similar linkage. A 2024 post by Econovis calculates a correlation coefficient of approximately 0.96 between global broad money and global equity market capitalization from 1995 to 2023. That result suggests that over multi-decade horizons, equity values and money supply have tended to move in the same direction to a notable degree.

When that relationship diverges, such as when U.S. equity capitalization rises much faster than M2, historical patterns suggest that either money growth eventually revives or asset prices adjust. Investors tracking the gauge therefore monitor both sides of the equation rather than index levels alone.

The recent combination of rapid gains in equity value and modest money growth places more weight on how that adjustment might occur.

Parallels with Past Peaks

Today’s roughly 306 % Wilshire 5000-to-M2 reading is not entirely without precedent, but the list of comparable environments is short. NelsonCorp data as of late 2024, published in early 2025, place the S&P 500/M2 ratio at about 0.28, a level they note has previously been higher only in 1929, 1937 and 2000, according to NelsonCorp. Those points in time are often associated with stretched valuations in broad market history.

Those earlier peaks were followed by challenging periods for equities, although each cycle unfolded differently. The late 1920s and 1930s episodes coincided with severe economic stress, while the 2000 peak was associated with a correction concentrated in technology and growth shares. This context comes from general market history rather than the specific MacroMicro, NelsonCorp, FRED or Econovis datasets cited here.

Current drivers are not identical to those earlier cycles. Many large-capitalization technology firms now report positive earnings and cash flow, unlike several prominent dot-com-era companies. That comparison relies on broader corporate financial history beyond the supplied indicator sources, but it highlights that similar ratio levels can arise under different earnings structures and sector compositions.

Another distinction is the role of post-pandemic policy. M2 growth accelerated sharply in 2020 and 2021 as emergency measures took effect, then decelerated as the Federal Reserve scaled back those actions. By late 2025 the year-over-year change in seasonally adjusted M2 sits just above 4 %, according to FRED, which is markedly below the double-digit money-growth rates recorded earlier in the decade.

Investors drawing historical parallels therefore confront two opposing forces. On one side, many sectors display stronger reported profitability and balance sheets than in some earlier bubbles, based on broad corporate data outside the cited indicator series. On the other, the current monetary backdrop represents one of the weakest periods of broad money expansion in several years.

The stock-to-money ratio stands at levels traditionally associated with later-stage cycles, but the underlying earnings and policy environment is different from previous episodes.

What Keeps the Gap Wide

According to practitioner commentaries outside the core indicator datasets cited here, three forces may help explain why market capitalization continues to grow faster than money supply. The first is the artificial-intelligence investment cycle, which has lifted earnings expectations for semiconductor, cloud and software companies. Many of the largest constituents of the Wilshire 5000 fall into these categories, so revisions to their profit outlooks carry significant weight in the index.

The second factor is the perceived scarcity of alternatives. Treasury yields have been volatile, and for many asset allocators, equities may still appear relatively attractive compared with some fixed-income instruments that adjust for inflation, according to these commentaries. This preference can support higher equity valuations per unit of liquidity when investors are comfortable with earnings and credit conditions.

The third influence is the scale of buybacks since 2021. Corporate repurchases have reduced share counts, which supports per-share earnings and can sustain valuation multiples even if aggregate profit growth slows. These practices are frequently noted in practitioner discussions beyond the MacroMicro, FRED, NelsonCorp and Econovis materials used for the core ratio analysis.

Together, these elements can obscure the fact that total money has not kept pace with equity capitalization. All else equal, if M2 had grown at a faster historical trend rate, the October 2025 ratio would sit materially lower than 3.06. That conclusion, based on combining MacroMicro’s Wilshire 5000/M2 readings with FRED’s M2 series, illustrates how modest changes in liquidity growth can produce large differences in the stock-to-money measure.

For risk managers, the message is to monitor not only interest-rate levels but also seasonally adjusted money aggregates. A softening in deposit growth or a faster central-bank balance-sheet runoff, developments that would show up in M2 and related measures, could add further downward pressure on equity valuation multiples.

The current ratio therefore functions as a summary indicator of how dependent equity prices may be on continued access to funding and stable money growth.

Consequences for Portfolios and Policy

Practitioners can use the stock-to-money ratio in several ways. Asset-allocation teams may employ it as a cyclical overlay, trimming equity weights when the gauge rises above a chosen percentile band relative to history. Quantitative strategists can combine it with metrics such as price-to-earnings ratios and Tobin’s Q when building multi-factor valuation models.

Some pension funds and advisors may monitor the ratio when setting long-term real-return assumptions, according to practitioner commentary outside the core data sources referenced here. NelsonCorp’s historical quintile analysis offers one benchmark: when the S&P 500/M2 ratio sat in the top fifth of readings, the index subsequently delivered materially lower returns than in periods following the bottom fifth, as reported by NelsonCorp. Allocators who translate that spread into today’s context may choose to reduce expected equity returns in their strategic models.

Risk-parity managers could treat the ratio as a liquidity proxy that complements volatility targets. When market value expands faster than broad money, the equity share of global financial wealth rises, which means that a given volatility spike would require more notional deleveraging to restore target risk levels. Some strategies reduce exposure once the ratio breaches pre-set bands, although such practices are described in practitioner literature rather than in the specific indicator datasheets referenced here.

Central-bank officials could consider extreme readings as one among many financial-stability indicators, according to some observers, even though the MacroMicro, FRED, NelsonCorp and Econovis materials do not document such usage directly. The gauge offers a window into how strongly policy changes might transmit to risk assets in principle, by linking liquidity conditions to the total value of listed equities. It does not replace traditional financial-stability metrics, but it can supplement them.

For household investors, the most practical implication is expectations management. High stock-to-money ratios do not guarantee future drawdowns, but NelsonCorp’s work indicates they have historically been followed by significantly lower subsequent S&P 500 returns than periods when the ratio sat in the bottom fifth of its history. That record suggests that current equity valuations are more likely to result in moderate forward returns if money growth stays near recent rates.

How Reversion Typically Unfolds

Historical evidence summarized in NelsonCorp’s commentaries and Econovis’s global money-and-equities work points to three broad adjustment paths. The first is faster money creation, in which central banks ease, credit expands and M2 rises more quickly. In that scenario, the stock-to-money ratio can move back toward long-run norms even if equity prices remain stable or rise.

The second path is price stagnation or mild declines. From 2000 to 2003, for example, U.S. stocks went through a deep bear market followed by an extended consolidation while M2 continued to grow, according to FRED data and general market records. This pattern compresses the ratio without requiring a deep recession, although specific return sequences lie outside the narrow indicator sources used here.

The third and harshest path is a rapid reset in valuation multiples. Episodes such as 1929 are widely cited in market history as instances where the stock-to-money relationship compressed quickly through a combination of equity-price declines and monetary contraction. Those details come from broader historical records rather than directly from the MacroMicro, FRED, NelsonCorp and Econovis datasets themselves.

Which route lies ahead depends on earnings durability and policy choices. If artificial-intelligence-related productivity gains materialize broadly, nominal GDP and money demand could increase, which might support higher M2 growth in the future. If growth slows while inflation remains elevated, policymakers may maintain tighter liquidity conditions, increasing the likelihood that prices absorb most of the adjustment; these are scenario judgments rather than direct readings from the cited data.

Past experience summarized by NelsonCorp suggests that the ratio has tended to move back toward long-run norms after reaching extreme levels. Allocation models that stress-test portfolios against that adjustment path are less likely to be surprised by valuation-driven drawdowns.

The current environment therefore encourages more attention to the interaction between money growth assumptions and equity-return forecasts.

For now, the market-cap-to-M2 gauge indicates elevated valuation risk rather than an inevitable downturn. It signals that the share of broad money represented by public equity prices is high by historical standards. At the same time, it does not specify when or how any adjustment would occur.

Whether policymakers or corporate profits change the ratio first will likely influence equity outcomes during the second half of the decade. Until one side of the ratio shifts meaningfully, the combination of MacroMicro’s roughly 306 % reading and FRED’s modest mid-single-digit M2 growth argues for tempered expectations and disciplined rebalancing.

The last time valuations reached similar territory, according to NelsonCorp’s reconstruction of the S&P 500/M2 series, mean reversion arrived through a mix of slower equity gains and, at times, faster money growth. A generation later, investors evaluating the same metric have access to a longer statistical record from sources such as MacroMicro, FRED, NelsonCorp and Econovis, but they still face uncertainty about the exact timing and form of any future adjustment.

Sources

• MacroMicro. "US – Total Market Value of US Stocks / Fed M2." MacroMicro, 2025.
• Board of Governors of the Federal Reserve System. "M2 (M2SL)." Federal Reserve Economic Data, 2025.
• NelsonCorp Wealth Management. "The “Stock-to-Money” Ratio." NelsonCorp, 2025.
• NelsonCorp Wealth Management. "Overextended." NelsonCorp, 2025.
• Econovis. "Global Equities vs. Money Supply (1995-2023)." Econovis, 2024.
• MacroMicro. "US – Market Capitalization (Wilshire 5000)." MacroMicro, 2025.