The most recent H.6 Fed data, although showing a return to positive growth from last week's decline in M2 (nsa) growth, is still at anemic levels. Three month annualized M2 (nsa) is now at 3.9%. This compares with 6 month annualized growth of 9.2%.
Bottom line: Money growth is now clearly slow money growth which sets up the stock market for a major decline in the weeks ahead, and an overall second downturn in the economy.
Also of note, the monetary base is down from its peak, as are excess reserves. Both the monetary base and excess reserves appeared to have peaked about a month ago, with the peak coming in the May 20 data.
It's a bit easier for the Fed to control the monetary base, than it is money supply. So the fact that the base itself is declining, suggests that an intentional effort by Ben Bernanke is underway to do do.
Things can change quickly under Gentle Ben, but right now they don't look good for the stock market or economy.
The current status of the markets is strikingly similar to mid-December 2002 in the previous bear market. On December 10, 2002, the FOMC released a ho-hum announcement that resulted in uncharacteristically low volatility in the S&P 500 that day (similar to Wed's announcement) and the time period was close to the end of the year (paint the tape scenario similar to end of Q2 09 now). Though the S&P 500 had just failed to take out a previous high in 2002 and we have currently taken out the high from the beginning of 2009, the situations are still close. What is different is that in December 2002, M2 was growing at 6.3% whereas currently M2 is only growing at 3.9% as you point out. The result in 2002 was a failure to “paint the tape”, another rally that failed and created a head and shoulders that, once it broke the neckline, saw a return to test the lows. Should this current rally fail over the next few weeks, we could also have a head and shoulders pattern with 875 as the neckline. I'm not a big believer in backtesting esoteric derivations of price, but the coincidence of the two major chart patterns and the actions of the Fed in both time periods should not be ignored.
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