Billionaire Chamath Palihapitiya Predicts S&P 500 at 7,000 on Rate Cuts

Billionaire venture capitalist Chamath Palihapitiya has expressed his bullish stance on the markets, citing two key financial factors driving his optimism. In a recent episode of the All-In Podcast, Palihapitiya analyzed the M2 money supply chart, which has been on an upward trajectory. He noted that the growth in M2 money supply is a significant reason behind the strong uptrend of the S&P 500.

Palihapitiya explained that the velocity of money, as measured by the M2 money supply, indicates how much money is circulating in the economy. He observed that as the economy stabilized, money began to flow back into the system, providing a boost to equity markets. He believes that the current situation presents a "free money" trade, where being levered long could yield substantial profits.

In addition to the M2 money supply, Palihapitiya is closely monitoring the amount of money invested in money market funds. These funds offer yields influenced by the Federal Reserve's interest rates. Palihapitiya predicts that once the Fed starts cutting rates, trillions of dollars currently in money market funds will likely be redirected into the stock market. He argues that Federal Reserve Chair Jerome Powell is in a challenging position, as there is sufficient data to justify rate cuts. If rates are cut, two things will happen: money will flow out of money market funds as investors seek better returns elsewhere, and the velocity of money will increase. This combination, Palihapitiya believes, will further drive up equity markets.

Palihapitiya's analysis suggests that if Powell initiates an aggressive rate-cutting program, the S&P 500 could potentially reach 7,000. As of the latest data, the S&P 500 is trading at record-high levels. Palihapitiya's insights highlight the potential impact of monetary policy on financial markets and the opportunities that may arise from changes in interest rates and money supply.