Equity markets fueled by liquidity and excessively optimistic tech / AI valuations
September 11, 2025
CNBC Africa Panel Discussion: Leveraging the Mauritius IFC for Sustainable African Growth
October 25, 2025Equity markets fueled by liquidity and excessively optimistic tech / AI valuations
September 11, 2025CNBC Africa Panel Discussion: Leveraging the Mauritius IFC for Sustainable African Growth
October 25, 2025What if the Music just Stopped?
17 September 2025
With stock markets at their all time highs and interest rates being pressured down with sheer political will, it is very hard to take any bearish stance. With so much liquidity being poured down into the financial system asset price inflation almost seems a given, if not an unavoidable fate.
But what if the music just stopped?
NASDAQ Market Capitalisation relative to M2 Money Supply
The Nasdaq's market cap relative to the US M2 money supply has hit a record 176%.
The NASDAQ market capitalization relative to M2 money supply is a ratio that compares the total value of companies listed on the NASDAQ with the amount of money circulating in the economy.
A high ratio suggests that stock prices may be inflated compared to available liquidity, potentially signalling speculative excess or overvaluation. Conversely, a lower ratio implies that market valuations are more grounded in the actual money supply.
At 176%, this means the market value of the Nasdaq is nearly twice as large as the the total stock of liquid money in the economy.
The ratio has now exceeded the 2000 Dot-Com Bubble peak by approximately 45 percentage points.
Never in the history of financial markets has the rise in stock prices exceeded the growth of the money supply by this much.
Weakening Labour Market
The U.S. labor market is showing further signs of weakening, particularly in the temporary help services sector—a key early indicator of employment trends.
In August, temporary help jobs fell by 9,800 to 2.5 million, marking the lowest level since September 2020.
Excluding the pandemic period, this is the weakest reading in 13 years.
Year-over-year, the sector has now declined for 33 consecutive months, with a total loss of 677,000 jobs (down 21.3%) since its March 2022 peak, surpassing even the 2001 recession’s decline.
This sustained drop signals growing caution among employers and a broader softening in labor demand.
US Household Allocation to Stocks
US households’ appetite for risk has never been greater: US household allocation to stocks rose +2.2 percentage points in Q2 2025, reaching a record 45.4%.
This marks the 6th quarterly increase over the last 7 quarters. Since the 2020 low, this percentage has risen by 15 points.
Household allocation is now 3 percentage points above the 2021 record and 7 points above the 2000 Dot-Com Bubble peak.
Americans now hold a record $51.2 trillion in corporate equities and mutual fund shares. Households are all-in on equities.
Thoughts on the Markets
While I would not adventure as far as tellings investors to liquidate their portfolios or short the market (the markets can remain irrational longer than you can remain solvent), I would strongly advise to start rebalancing out of equities into fixed income and cash.
- There is an obvious disconnect in the equity markets where equity valuations have far outpaced reality.
- People are not getting richer from working and producing but rather from speculating on financial assets like stocks.
- The amount of household wealth tied to the equity markets is so high that any mild shock to the markets would sucker punch every segment of society.
There is definitely some similarity between the housing crisis of 2007-2008 and the great equity rally that we are in right now, everyone's eggs are in the same basket.
About Stewards Investment Capital
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Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or professional advice. Readers are encouraged to conduct their own research and consult with a licensed financial advisor before making any investment decisions. The mention of specific companies or financial instruments does not imply endorsement or a recommendation to buy or sell. Investments in digital assets or securities linked to digital assets, carry inherent risks and may not be suitable for all investors.
