What’s Really Behind the Global Risk Rally? Follow the Money.

In trying to explain this year’s rebound in riskier assets such as stocks, corporate bonds and emerging-market currencies, most pundits point to the giant reversal in attitudes at the Federal Reserve. In December, the central bank was talking up the need for multiple interest-rate hikes. Last week, Chairman Jerome Powell said the Fed can afford to be patient. But that’s only part of a bigger story.

As the MSCI All-Country World Index of stocks rose on Tuesday for the seventh straight day, matching its longest winning streak since November 2017, investor and strategist Danielle Lacalle of Spain’s Tressis SV was noting on Twitter how the rally mirrors the global rebound in the money supply. “Forget earnings or macro,” Lacalle wrote. “This is why markets have rallied.” A custom index measuring M2 figures for 12 major economies including the U.S., China, the euro zone and Japan shows their aggregate money supply peaked at $73.1 trillion in April, before dipping to $69.8 trillion in mid-November and then rebounding to as much as $72.6 trillion at the end of January. It’s widely believed that growth of the global supply of money by central banks looking to first combat the financial crisis and then keep their economies from falling into recession has been a key reason for the stellar performance in riskier assets. That growth is evident in the more than doubling of the money-supply index from $35.3 trillion in late 2008, just a few months before global stocks embarked on a rally that would see the MSCI more than double itself by early 2018 before last year’s rough patch.