The idea that the 2020s stock market could echo the 1920s stock market is a provocative one—and it’s not without basis.
Background
Post-Crisis Boom
- 1920s: Economic surge after WWI and the 1918 flu pandemic. The 1920s stock market surge didn't begin until the Depression of 1920-21 ended and the Federal Reserve lowered interest rates from 1921 until 1924. There was also a significant tax cut implemented in the mid-1920s both for individuals and corporations.
- 2020s: Rapid rebound following COVID-19 lockdowns, stimulus-fueled recovery. The Federal Reserve cut rates to essentially zero during the Covid Crash of February - March 2020. They also expanded their balance sheet significantly in order to inject liquidity into the economy. After raising rates to fight the rise of inflation, the Fed cut rates three times in late 2024, with possibly more on the way in 2nd half of 2025 and beyond.
Technological Revolution
- 1920s: Mass adoption of radio, household electricity, automobiles, airplanes.
- 2020s: AI, robotics, electric vehicles, biotech, and quantum computing.
Retail Investor Surge
- 1920s: Increased public stock participation, often speculative on shoestring margins.
- 2020s: Meme stocks, commission-free trading, Reddit/Robinhood frenzy.
Loose Monetary Policy
- Both eras: Easy credit and low interest rates fueling asset bubbles.
Boom in Corporate Profits & Innovation
- Tech-led productivity and earnings boosts in both eras.
Stock Market
How does the price action in the stock market compare?
In the first chart below I show the close only Dow Jones Industrial Average for 1921 thru 1930. In the second chart I show the results we have so far for 2021 thru 2030. Both charts are on arithmetic scale. In the chart of the 2020s I stretched the scale to get it in sync with the degree of scale range that occurred in the 1920s. I also moved the chart over to the right to align the timeline as close as possible.
In the 1920s the low for the decade occurred in 1921 with a strong upward push in second half of 1924 and throughout most of 1925. So far in the 2020s the low occurred in 2022 with a strong upward move starting in late 2023 lasting throughout all of 2024. So after the correction in early 2025, will the market mirror 1925 and push strong higher into 2026?
It will indeed be very interesting to see what kind of an echo of the 1920s stock market we get in the 2020s.
Monthly Closes
Data thru July 1