S&P 500 Bubble Gauge
Diagnose where the market stands by comparing the S&P 500 to the U.S. monetary base — with full historical charts.
Methodology: Why M0 (Monetary Base) instead of M2?
Among the many liquidity measures, this gauge uses the most fundamental one — M0, the Monetary Base — for the cleanest, least-distorted analysis. Here is why.
1. It most directly reflects central-bank policy
M0 is the "raw money" the Fed creates directly through policies like quantitative easing. M1 and M2 are derived money, shaped by bank lending and deposit flows on top of M0. Since asset bubbles originate from central-bank liquidity, comparing prices to the source — M0 — gets closest to the essence.
2. Consistency and reliability across decades
The definitions of M1 and M2 have changed over time — notably the 2020 M1 redefinition, which created an artificial jump that undermines long time-series analysis. M0's definition has stayed consistent, providing a stable, undistorted benchmark across decades.
3. Separating signal from noise
Short-term deposit shifts and loan-demand swings embedded in M1/M2 act as noise when valuing the market. We focus on the clear signal — the central bank's liquidity supply that sets the market's fundamental capacity. Using M0 strips out that noise.
4. The time lag barely matters
M0 is published monthly, so there is a natural 1–2 month lag. Unlike daily-moving stock prices, however, the monetary base is a slow, trending macro series with very low short-term volatility — the lag has minimal impact.
In short, comparing the S&P 500 to M0 is the most direct, pure measure of whether market growth is in sync with the pace of money creation.
Important Notice
All information and analysis on this site is for informational purposes only and is not a recommendation of any security or strategy. Past data does not guarantee future returns; all investment decisions and responsibility are your own.