Weekly Market Report: July 3rd, 2025
Amongst all the talk about “the big, beautiful bill” in Congress and whether Trump might show up in Jerome Powell’s kitchen to demand a lowering of interest rates, there’s a key stat that has been swept under the rug. It’s the growth of M2.
M2 refers to the money supply in the economy. It encompasses what they call M1, which is the physical currency in circulation and checking accounts, plus CDs (under $100,000) and money market mutual funds. Basically, M2 is a measure of liquidity in the economy, or how much money is in the system. When people complain about the government printing money, they are also complaining about how M2 is growing and devaluing their dollars.
The numbers are in and this year M2 grew 4.5% year over year in May1. The money supply is now a record $21.94 trillion. This increase was the 19th consecutive monthly increase. But according to the Bureau of Labor Statistics and official CPI data, the inflation rate is 2.4%2. The numbers don’t jibe. They are “incongruent”.
Going a step further, M2 has grown an astonishing 45% since 20201. In dollar terms, that’s $7 trillion. Our collective purchasing power has been absolutely hammered in the last 5 years. I’m not going to go through all the categories, as we’ve shared the pain in our checking accounts. I’ll just share this example of what’s happened to the median house price in America. Since 2020, specifically from February 2020 to February 2025, home values have climbed 45.3% according to a report from Zillow3. Let me see if I can get my mind wrapped around this phenomenon. Housing prices are 45.3% higher in 5 years. The money supply has grown 45% in 5 years. This may be semantics but let’s ask ourselves a question. Is our house really worth more than 5 years ago? In terms of purchasing power if you sold it? I know my answer.
How then do we grow our purchasing power? It would seem that we would need to not only surpass the official inflation rate, but we also need to earn a greater rate of return than whatever M2 grew at. This rules out a number of things, at least if they are used by themselves and not as a complementary part of a portfolio to reduce risk:
Money Market Funds – Last I checked our Schwab money market ticker SWVXX was 4.1%. If that’s all you have you are losing ground to the money supply (and to everyone else’s purchasing power).
CDs – This is the same story roughly. We looked at one-year CD rates this morning and they were hovering around 4%. That’s not good enough either.
Bonds – According to Ycharts AI, most higher-grade (A/AA) corporate bonds yield in the lower-to-mid 4% range. That falls short of the mark too, though there’s the potential for price appreciation. The 10-Year US Treasury Yield is 4.28% as of yesterday.
Fixed Annuities – Looking over some of the Multi-Year Guarantee Annuites would produce returns of 5.5% to 5.85%. But the ones written 5 years ago wouldn’t have gotten more 3 to 4%. (Note: These are somewhat dissimilar to fixed indexed annuities we’ve done for our clients with income riders to provide pension income).
Since the government has completely failed to give us a useful, honest statistic for figuring out the deterioration of our purchasing power, let’s create our own that more approximates what’s really happening. I’m going to call it the Redefined Real Rate of Return. We’ll call it R4.
It’s the (Nominal Rate of Return) – (Growth of M2) = R4.
That should be the standard of figuring out how to assess our returns in light of the influx of money printing every year. It’s a lot closer too, I think, to the real inflation rate.
So, in this example, if we’re generous and say we can get a 5.85% nominal fixed annuity return and then subtract the M2 growth of 4.5%, we get an R4 of 1.35%. That just really takes the wind out of your sails doesn’t it? At least it’s not negative like the others.
What would produce a better R4? Something that’s accessible to everyone that, if you’re willing to take the risk has the potential to generate an R4 worth you and your money’s time.
The answer of course is the stock market. You didn’t think I was going to promote crypto did you? For the sake of fairness let’s look at the same exact time period from February 25, 2020 to February 25,2025. The S&P 500 closed on 2/25/20 at 3,225.89. 5 years later, on 2/25/2025 it closed at 5,955.25, good for an 84.6% return since 2/25/2020. The R4 calculation would be 84.6% – 45% = 39.6% for that 5-year period.
So, would you rather have a 39.6% Redefined Real Rate of Return since 2020 or a 0.3% R4 over that 5-year time frame which is what the median American property did?
I’ve left out a hot topic and that’s the shiny gold metal. Let’s be fair and look at that, too. Gold closed at $1,646.90 on 2/25/20204. On 2/25/2025 Gold closed at $2,950.37. That’s a growth rate of 79.1%. If we do our R4 calculation for the period we’ll see that Gold takes 2nd place here with an R4 of 34.1%.
To sum up this math exercise, our scoreboard would look like this:
- S&P 500 – R4 over the 5-year period of 39.6%
- Gold – R4 over the 5-year period of 34.1%
- Real Estate – R4 over the 5-year period of 0.3%
- Everything else – 0% or Negative (as multi-year guaranteed annuities weren’t making 5.85% in 2020)
We have the S&P 500 ETFs we can put you in. We can put you in Gold ETFs as well. We’re constantly seeking better returns, which is why in our Investment Committee meeting this week, we tweaked our Low Volatility portfolio that so many of you are in to add some more international exposure which is working very well this year. That portfolio has both an S&P 500 proxy and a Gold ETF as well. We’re constantly looking to keep you a rung above on the earnings ladder. If you’re ready to climb it a little higher and potentially increase your risk in the market in light of your deteriorating dollars, please give us a call. If you listen to us, we’ll change your financial world …
Sincerely,
Scott Wright
The WTA Investment Committee
Sources:
1@KobeissiLetter
2https://www.bls.gov/cpi/
3https://www.zillow.com/research/pandemic-home-values-rents-34896/
4https://goldprice.org/fr/node/45256
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