13-Week Money Supply Growth Accelerates, Bucking Seasonal Trends
Money Supply is a very important indicator. It helps show how tight or loose current monetary conditions are regardless of what the Fed is doing with interest rates. Even if the Fed is tight, if Money Supply is increasing, it has an inflationary effect.
One key metric shown below is the “Wenzel” 13-week annualized money supply figure. It was made popular by the late Robert Wenzel who tracked the metric weekly as an indicator for where the economy might be headed. In 2020, the Fed started reporting the data monthly instead of weekly. It should also be noted that Money Supply data can be heavily revised in future months.
Recent Trends
Seasonally Adjusted Money Supply has been growing on a consistent monthly basis since January 2024. The latest month (May) showed another solid increase of $80B. This is not as large as last month, but continues the trend of ever expanding money supply.
Figure: 1 MoM M2 Change (Seasonally Adjusted)
The increase was 4.5% annualized, which is in-line with the 4.5% over the past year.
Figure: 2 M2 Growth Rates
May average is typically around 5.9%, which puts the latest month actually below average.
Figure: 3 Average Monthly Growth Rates
Non-seasonally adjusted actually shows a much smaller increase for the month of May, followed by a pop for the month of June (note: this data is ahead of the seasonally adjusted data).
Figure: 4 MoM M2 Change (Non-Seasonally Adjusted)
The weekly data shows that the recent pop in non-seasonally adjusted came from a pretty large increase in the latest week available (June 2nd).
Figure: 5 WoW M2 Change
The “Wenzel” 13-week Money Supply
The late Robert Wenzel of Economic Policy Journal used a modified calculation to track Money Supply. He used a trailing 13-week average growth rate annualized as defined in his book The Fed Flunks. He specifically used the weekly data that was not seasonally adjusted. His analogy was that in order to know what to wear outside, he wants to know the current weather, not temperatures that have been averaged throughout the year.
The objective of the 13-week average is to smooth some of the choppy data without bringing in too much history that could blind someone from seeing what’s in front of them. The 13-week average growth rate can be seen in the table below.
Growth accelerated for 27 straight weeks, slowed slightly for 9 weeks, but has now re-accelerated for the last 9 weeks. The growth rate is now 5.96%, coming off the low of 4.68%.
Figure: 6 WoW Trailing 13-week Average Money Supply Growth
The plot below shows how this year compares with previous years. This year has started at about the average point over the last 10 years. Growth typically slows from this point into August; however, so far this year is showing a continued acceleration when other years have started to dip. This is a very important trend to watch over the next 2 months. Most people think of the “Sell in May and go away” mentality, but an accelerating money supply growth could produce the opposite effect.
Figure: 7 Yearly 13-week Overlay
Inflation and Money Supply
The chart below shows the history of inflation, Money Supply, and Fed Funds. As shown, in 1970 inflation worked with ~2 year lag compared to Money Supply. Money Supply slowed dramatically in 2023 and 2024 but has been moving back up. Inflation has also been stickier than the Fed would like, but unfortunately, they cannot do much given the large debt load of the US Government and Corporations.
Figure: 8 YoY M2 Change with CPI and Fed Funds
Historical Perspective
The charts below are designed to put the current trends into historical perspective. The orange bars represent annualized percentage change rather than raw dollar amount.
Figure: 9 M2 with Growth Rate
Below shows the 13-week annualized average over history. This chart overlays the log return of the S&P. Mr. Wenzel proposed that large drops in Money Supply could be a sign of stock market pullbacks. His theory, derived from Murray Rothbard, states that when the market experiences a shrinking growth rate of Money Supply (or even negative) it can create liquidity issues in the stock market, leading to a sell off.
While not a perfect predictive tool, many of the dips in Money Supply precede market dips. Specifically, the major dips in 2002 and 2008 from +10% down to 0%. 2022 was highly correlated with a fall in Money Supply and the rebound has corresponded with the big stock market move we saw in 2023 and into 2024. The slowing growth in 2025 did correlate with the market drop in March/April, but that was clearly more headline driven.
Please note the chart only shows market data through June 2nd to align with available M2 data.
Figure: 10 13-week M2 Annualized and S&P 500
One other consideration is the reverse repo market at the Fed. This is a tool that allows financial institutions to swap cash for instruments on the Fed balance sheet.
Reverse Repos peaked at $2.55T on Dec 30, 2022. Money gushed out from March 2023 to May 2024. The outflows have been muted since with the current balance around $187B.
Figure: 11 Fed Reverse Repurchase Agreements
Wrapping Up
Non-seasonally adjusted 13-week money supply growth has continued to accelerate, bucking the seasonal trend. This could provide more fuel to the stock market during a typical slow time of year (summer).
