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.

The Federal Reserve (Fed) cut the Federal Funds rate by 50 basis points or 0.50% on September 18. So does this mean that the economy is so weak that the stock market will sell off or is something else going on? Let's review what's happened in the last 30 years, 1994 to 2024. 

Mid-90's

The first chart below shows the S&P 500 Index (SPX) from 1993 thru 1996. The Fed raised interest rates 7 times, starting with +.25% in February 1994 and ending with +0.50% February 1995. The SPX chopped sideways during this time and then began a steady rise in 1995. 

The Fed then cut interest rates in July 1995 by 0.25% followed by two more cuts in Deember 1995 and in January 1996. The SPX kept rising into May 1996, had a small pullback in July then took off again steadily rising.

2000 to 2003 

The next rate cut cycle began in December 2000 with a -0.50% cut. This occurred nine months after the SPX peaked in March 2000. The Fed then cut rates 12 more times, with the last cut occurring in June 2003. At that point they had cut interest rates by -5.50%. Notice that the SPX hit bottom in October 2002, about 9 months before the last rate cut.

2007 to 2008

The next rate cut cycle began in September 2007 when the Fed cut rates -0.50%. The SPX peaked 3 weeks later. The Fed then cut rates 9 more times for a total of -5.50%. The last cut occurred in December 2008 and the SPX bottomed 3 months later in March 2009. 

2019 to 2020

The next rate cut cycle began in July 2019 when the Fed cut rates -0.25%. They then cut rates 2 more times before the Covid panic in March 2000. In March 2020 the Fed cut rates -1.50% in a 3 week period. The SPX bottomed during the very next week. This set off a rapid rise in the stock market because not only did the Fed cut rates but they dramatically increased their balance sheet by buying everything in sight and thereby injecting a huge supply of money into the system.

2024 to ......

And now the Fed began another rate cut cycle with the -0.50% cut on September 18, 2024. So is the market about to peak like 2007 or is this more like the mid-90's. Over at Charles Schwab, Liz Ann Sanders and Kevin Gordon published an article back in August that looks back at the 14 Fed rate cycles since 1929. Interesting article that provides additional insight. You can read it here. 

The stock market shows some interesting tendencies when it comes to its path throughout a decade. In this post I will review what occurred in the Decade Cycle over the last 100 years. Then I'll apply those tendencies to the current decade to see what may be underway.  Keep in mind this is just one cycle of many cycles influencing the stock market but it's amazing how well it repeats.

First let me say that I start the count for the decade cycle with year 1.  So even though we say 1930 is in the thirties, I count it as year 10 of the 1920s cycle since we don't count to 10 by starting with zero, we count 1, 2, 3....10.

So I looked at 10 decades starting with 1921 - 1930 using data from the Dow Jones Industrial Average (DJIA).  See the table below.  

Early Decade Low

The first fact that leaps off the table is that eight of the ten years showed the low for the decade in either year 1 or year 2.  But let's take a look at the two decades that didn't show this. 

1971 - 1980 had a low for the decade in year 4 BUT when we look closer you see that the low occurring prior to the high for the decade, happened in year 1.  

And the 2001 - 2010 decade had a low of the decade in year 9, BUT the low prior to the decade high occurred in year 2.  So the Decade Cycle indicates that our low made in 2022 has an 80% chance of being the low for the decade and a 100% chance of being the low prior to the high of this decade.

2nd Half Highs

The next fact that arises is that the the high for the decade occurs in years 7 - 10 in eight of the ten decades.  See the second column in the table.  And if we add in the high in year 6 for the 1961 - 1970 decade, then we can say that nine out of ten decades had their high in the 2nd half of the decade in years 6 - 10.  

The 1971 - 1980 decade had a high in year 3 and was extremely volatile.  It did have highs in year 6 and year 10 that came close to the year 3 high but the 1973 high remained the high for the decade.

So the Decade Cycle indicates that there is a 90% chance that the high for 2021 -2030 will occur sometime in 2026 - 2030.

Up in the Middle

The third fact that jumps out at you is the column titled Years 4 - 6.  This is the middle of the decade and we are in year 4 right now.  All ten decades were positive for these 3 years.  So there's a high probability that on December 31, 2026 the DJIA will close higher than 37,689.54 which is where it closed on the last trading day of 2023.

Election Year in Year 4

We are in year 4 of the Decade Cycle and it's an election year.  Five prior decades in the last 100 years had presidential elections in year 4. All of the highs for those decade cycles occurred in years 6 - 10. Those were the 1920s, 1940s, 1960s, 1980s and 2001 - 2010.

So based on 10 decades of data covering huge rallies, crashes, depressions, recessions, war and generations of stock market participants there is a high probability that the low for this decade has been seen and the high is still to come.  One thing you can be sure of...there will be plenty of volatility.