Veteran investor Mark Mobius has sounded the alarm about a potential risk that could disrupt the U.S. markets, citing the recent market volatility. His concern stems from a decline in the M2 money supply, a broad measure of money in circulation including cash, deposits, and certain savings accounts.
Mobius, the founding partner of Mobius Capital Partners, has been closely monitoring the M2 money supply. It peaked at $21.722 trillion in April 2022 but fell to $21.025 trillion in June 2024, representing a decrease of approximately 3.21%. This decline, according to Mobius, is historically significant as it marks the largest drop in over 90 years.
Mobius expressed his worries that if the M2 money supply continues to shrink and fails to keep pace with economic growth, it could lead to a reduction in available capital for discretionary spending. This spending has been a key driver of the current economic expansion and the bull market on Wall Street.
Despite these concerns, Mobius remains optimistic about certain sectors. He sees potential in tech stocks, particularly those in the semiconductor industry. He believes that companies like TSMC and United Micro, amongst others, will continue to thrive due to increasing global demand and the rise of artificial intelligence. However, he cautions that companies with weak balance sheets, low or no earnings growth, and high debt could face significant challenges.
Mobius’s warning comes after a period of optimism in the U.S. markets. The S&P 500 and Nasdaq 100 had enjoyed an eight-day winning streak, fueled by optimism surrounding the U.S. economic outlook and improving financial conditions. However, Mobius has previously predicted further economic struggles following a stock market crash, attributing it to rising global geopolitical tensions and the upcoming U.S. presidential election. Additionally, concerns have been raised about the potential impact of excessive government printing on inflation.
While Mobius acknowledges the risks, he advises investors to focus on companies with strong fundamentals: “Look for companies with little or no debt, moderate earnings growth, and high return on capital, and get ready to re-enter the market.” His recommendations underscore the need for investors to navigate the evolving economic landscape with caution and focus on well-positioned companies.
