There is an enormous fear among investors of an upcoming recession. It appears as though ‘everyone’ already has accepted that a recession in 2023 is unavoidable. While a recession might come, it’s not ‘a given’ that it will happen.

In fact, there is a solid case to be made that a ‘rolling recession’ hit the world in 2022, and that it is near completion. If our thesis is true, then there will be no stock market crash in 2023. That said, here is one really interesting data point that confirms our thesis which supports most (if not all) of our 2023 forecasts.

The data point below is M2, one of the measures of the money supply. While it is true that M2 has been shrinking lately, the point is that it has been doing so from elevated levels. The fact that it started shrinking is a standalone data point that requires context.

One of the ways to bring some context to the M2 money supply trend is by looking at it in a relative way. The chart below does just that, as it looks at M2 as a ratio of nominal GDP.

The economy remains awash in liquidity, with the ratio of M2 to nominal GDP (i.e., the reciprocal of M2 velocity) still near its recent record high, 84% during Q3'22, as shown by the chart.

We picked this chart because it tells us something about liquidity. Here is the point: if the market was about to start a market crash, it would occur due to absence of liquidity. All previous crashes came with a credit crunch. There are no such signs today, that’s what the chart below tells us.

Image Source: Yardeni Research

Moreover, as seen on the PCE inflation index below, we are entering a period in which monthly inflation readings will start showing significantly lower year-over-year readings.

The acceleration started in November/December of 2021. Consequently, as of January 2023, the year-over-year inflation readings will be against very high readings one year prior. This suggests that those cataclysmic headlines like "inflation at record highs" will be something of the past.

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