THE BULLISH CASE FOR STOCKS

In his recent blog post, Ben Carlson of Reinholtz Wealth Management, said that our current stock market situation may turn out to be similar to the Roaring 20s – the 1920s that is.  The graph below shows the Dow Jones Industrial average for the period between 1920 and 1929 just before the stock market crash of 1929. 

In 1920, we had just emerged from a World War and the Spanish Flu pandemic.  The decade began with a Depression in 1920 and 1921 and then the stock market rose by 500%.

Here is what Carlson has to say about the 2020s.

“Net worth is at all-time highs.

The stock market is at all-time highs.

Housing prices are at all-time highs.

Economic activity is at all-time highs.

The unemployment rate has been below 4% for more than two years.

You can even earn 5% on your cash!

People are spending money like crazy.

Retail sales have seen a massive jump per-pandemic levels:

Inflation partially explains this but even on a real basis these numbers are so much higher than the pre-pandemic trend.

Even after accounting for inflation, people are spending way more money on food these days:

Yes we love to complain about prices at the grocery store but that hasn’t slowed people down from spending.

In fact, people are eating out more than ever these days:

That period of Covid restrictions around eating out obviously sparked something in people that made everybody want to go out to eat more than ever before.

It’s not just eating out. People are traveling like crazy now too.

Plus, we’re in the midst of an AI boom.

In a keynote address last week, NVIDIA’s Jensen Huang listed all of the companies that now rely on the chipmaker:

NVIDIA’s market cap has gained nearly $1.7 trillion since the start of 2022.

Call it a bubble if you want but the AI revolution is coming regardless of current tech stock valuations. The future will include robots and AI-based personal assistants and tutors for your children and who knows what else.

Consumer sentiment doesn’t exactly line up with a roaring 20s mentality because people hate inflation and higher interest rates.1 But you have to watch what people do, not what they say.

People are spending money on food, travel, clothes and technology.

They’re investing in their 401k, IRA or brokerage account. They’re gambling in their Draft Kings or Fan Duel account. They’re day trading options in their Robinhood account.

People are acting like it’s the Roaring 20s, whether they agree with that sentiment or not.

It’s also worth pointing out that the orgy that was the Roaring 20s was followed by the Great Depression.

Booms are inevitably followed by busts. So it goes.

The current post-pandemic period also unleashed an entrepreneurial appetite for risk in this country the likes of which we’ve never seen before. Business formations are at an all time high.

Things could always be better.

But it’s crazy to be where we are considering where we were just four short years ago during the outbreak of Covid.

As far as I’m concerned, the Roaring 2020s are here.

Enjoy it while it lasts.”

None of us knows what the short-term future holds. Many people are worried about a big stock market correction after the huge growth in stock prices since October of 2022.

If this the beginning of a bubble, you want to stay invested because the gains are always highest at the end of a bull market run.

Our customers that follow our Market Signals recommendations can safely stay aggressively invested because the system will automatically get them out of stocks when things head south.

Stay Disciplined My Friends,

Phil

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