Mark Twain once wrote, "History doesn't repeat itself, but it often rhymes." In this post, I will lay out my thesis that we are about to enter a period of stock market action that will rival that of the roaring 1920s and also that of the Dot Com Boom of the 1990s. I have arrived at this perspective by examining both fundamental and technical factors. Let's take a closer look at why I believe we may be entering the "Roaring 2020s ."
The 1920s were time of excess and prosperity for the United States. After the horrors of World War I, the ingenuity that was used to win the war was turned to produce many modern appliances that we often take for granted. The1920s saw the advent of many important products such as the radio, silent movies, vacuum cleaners, washing machines, and refrigerators. It was also a time when many Americans first had the opportunity to purchase their own automobiles. The demand for these new products let to strong growth for leading companies such as RCA, as well as for the market on the whole.
The 1990s saw the internet totally transform the world. For those who were born in the 1980s or earlier, we can remember what life was like prior the internet. From this one singular invention, virtually everything changed, from how we purchase items, to how we listen to music, to even how people date! The introduction of the internet into the economy led to an absolute boom in tech companies as the Nasdaq Composite climbed higher into the year 2000.
In our current times, we are also on the verge of new era. The coming decades will most likely be dominated by crypto and AI. Just like the introduction of the internet, these two innovations will usher in a period of increased productivity and thus sales and earnings growth for tech related companies.
Crypto has developed a somewhat negative reputation, but blockchain technology has the potential to completely transform the way transactions are recorded. This has the ability to drastically effect voting, financial transactions, healthcare records, and the entire banking and financial space. This is a complicated topic, but for a quick introduction please see my video on Ethereum.
Artificial Intelligence is a term that have taken on a very dark and ominous tone over the past few years. While many have visions of a dystopian world similar to that of Terminator II, the truth is that there is also the possibility that AI will enhance the human experience. It is true that the internet eliminated many jobs, but it also did create countless new industries. For instance, there are very few door to door encyclopedia salesmen now, but the flip side is now it is easier than every to start your own online business. Likewise, less people watch cable television but more and more people can watch or even start their own YouTube channel. AI will bring with it massive changes and those innovations will lead to increased productivity which will lead to stronger earnings. This is something Wall Street always likes to see.
The 2022 bear market saw the FED repeatedly raise interest rates eleven times to break the back of inflation. In the mid-1990s, Alan Greenspan raised rates seven times, bringing rates up to 6%. When we look at the chart below we can see how in 1995 as rates stopped rising, the market roared higher. I believe we will see similar action in our current times as the FED has signaled it no longer has the intention of raising rates and instead is likely to cut rates.
For the past few months, I've been bringing up a comparison between the 1990 bear market and the 2022 bear market. The charts look strikingly similar. There are also some comparisons that can be made between our modern era and the first quarter of the twentieth century. The Panic of 1907 was a banking crisis that had some price action similarities to our 2008 crash. In addition, the Spanish Flu took place about 100 years prior to the COVID-19 pandemic. There was also a bear market in the early 1920s which is comparable to both the 1990 bear market and the 2022 bear market.
Dow Jones 1920s
While all of this is interesting, no one knows for sure what the future holds. The best we can do is to try to anticipate trends, ride them when we are right, and quickly exit for a small loss when proven wrong. Time will tell if we really do see a "Roaring 2020s," but one thing is for certain: the 2020s will be anything but boring.
Risk right. Sit tight.
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