Stocks vs Inflation: Does the Stock Market Beat Inflation? Avoid the Savings Trap
We test whether the stock market beats inflation once money printing counts, using the S&P 500's 468x rise since 1926 and savings that fell to 4.3 cents.
Topic
Monetary Expansion and the Stock Market
Monetary expansion is the backdrop to everything in Part II, where we compare the stock market and savings with a money supply that grew 503-fold between 1926 and 2025.
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On a logarithmic chart the S&P 500 and M2 move together closely enough that we found it hard to call the market’s rise anything other than a reflection of new money.
The bigger surprise was in the timing. Major crashes tended to follow periods when money growth slowed below its average of about 6.66%, and the recoveries, including quantitative easing after 2008 and the 2020 stimulus, were powered by fresh money, which is why we called the post-2009 rally a re-pricing rather than a surge in corporate value.
- 503x M2 growth, 1926 to 2026 The break-even multiple used in Parts I and II.
- 468x S&P 500 on price, 1926 to 2025 An M2-adjusted value of 0.932, about 6.8% behind M2.
- 3.17% Average 3-month T-bill rate Against average M2 growth of 6.66% a year in Part II.
Articles on Monetary Expansion
1 article from our research on this topic.
Plain-English definitions
Key terms for monetary expansion
- Quantitative easing
- Central bank buying of bonds with newly created money, used heavily after 2008 and again in 2020. It adds directly to the money supply.
- M2 money supply
- The Federal Reserve’s measure of cash, current accounts and easily accessible savings in the US. We use it to see how quickly new money is being created.
- M2-adjusted value 1.0 = break-even
- An asset’s growth divided by M2 growth over the same years. Above 1.0 it gained share of the money pool, below 1.0 it lost share.
- Hurdle rate
- The return needed just to break even with money printing. In most decades since 1928 it was higher than the yield on safe savings.
FAQ
Questions about monetary expansion
Answers drawn from the figures in our research. Educational only, not financial advice.
Does monetary expansion push up stock prices?
In our data it accounts for most of the S&P 500’s price rise over the century. We took the index history from Macrotrends and the M2 series from the St. Louis Fed, and between 1926 and 2025 the S&P 500 went from an annual average of 13.40 to over 6,276, a 468-fold rise, while M2 grew 503-fold, so on price alone the index finished at an M2-adjusted 0.932, about 6.8% behind.
The Dow did worse at 292x and lost more than 40% of its value relative to M2. Part III changes the picture by putting the dividends back in, which takes the S&P 500 to 11,570x since 1928, about 24 times what M2 did.
What happens to markets when money supply growth slows?
In the century we looked at, crashes often followed, though the pattern is easier to see on a chart than to use. Part II sets the St. Louis Fed’s annual M2 growth rate against the recessions and big market falls from 1926 to 2025, and the falls tended to come after money growth dropped below its long-run average of about 6.66% a year.
What happened next depended on new money. After 2008 it was quantitative easing, and in 2020 and 2021 it was $4.8 trillion, with M2 growing at an annualised 19%, and when we indexed both to January 2019 the S&P 500 had reached 2.6x against 1.52x for M2. We would treat all of this as a pattern worth knowing about rather than something to time the market with.
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