Return Of The Roaring Twenties
Would the 1920's have roared without a global pandemic that killed tens of millions of people in 1918 and 1919?
It's a stark question to ask, but understanding what happened in the years leading up to the economic boom of the roaring 1920's could help us understand what might happen in a post-COVID-19 world.
The 1918 influenza pandemic lasted 2 years and was hastened by the mobility of millions of armed forces that fought in the first World War. 50 million people perished and roughly 1/3rd of the global population were infected with the virus.
But word traveled slowly back then, as the radio was just beginning to be widely adopted by American households, and most of the attention was focused on developments related to the first World War rather than the pandemic.
Still, eventually the reality of the 1918 pandemic became too difficult to ignore, and big cities like New York, Chicago, and San Francisco initiated targeted lockdowns of movie theaters and restaurants, along with implementing mask-wearing mandates.
As Mark Twain once said, "History does not repeat itself, but it often rhymes."
Fast forward to 1920: The deadly strain of the H1N1 virus has just faded away, and millions of American men returned home from a deadly world war. Spirits for a recovery are high.
Those high spirits in a post-war/pandemic period combined with significant technological advances in communications, transportation, and mass manufacturing led to an almost decade-long economic and cultural boom.
The rise of the consumer primarily drove the economy higher, as widely available credit allowed them to purchase time saving products that led to a significant boost in productivity: electric appliances, the telephone and radio, and the automobile.
Eventually, with few regulations and zero safety nets in place, this boom period came to an abrupt halt in 1929 in the greatest and longest economic depression America has ever seen.
Fast forward to 2020. The COVID-19 pandemic continues its spread, but with two successful COVID-19 vaccines on the horizon, everyone can see the return-to-normal light at the end of the tunnel.
On top of that, the consumer is in surprisingly good shape. Savings rates are through the roof as a drop in traveling and going out to restaurants translates into big cost savings.
The housing industry is flourishing as a record number of Americans buy homes thanks to near-zero interest rates, and consumer sentiment has staged an impressive rebound since the first wave of the pandemic.
At this point, it's difficult to not conclude that in a post-pandemic world, consumers will be eager to get out and spend their savings on travel and experiences after spending a year social distancing and limiting contact with people.
This will lead to a renewed surge in the economy and stock market.
On top of that, productivity gains will be sizable as employers adapt to a new hybrid environment of work from anywhere as well as the office, and as more companies adopt technological innovations related to automation, robotics, and artificial intelligence.
But that doesn't mean we're out of the woods yet. The distribution of a COVID-19 vaccine is still months away and we are on the verge of a grim Winter with record daily infection cases leading to school closures and more targeted lockdowns.
Consumer spending has been in decline over the past couple of months and a lack of another round of fiscal stimulus from Congress could stall the economic recovery significantly. More than 11 million Americans remain unemployed.
But once we do make it to the other side of this pandemic, the businesses and investors that managed to hold on will likely be rewarded for years to come.
Chart Of The Week
With the presidential election now in the rearview mirror, a great deal of uncertainty has been removed from the stock market.
Investors can now shift their attention to the market-friendly possibilities of a Joe Biden administration (infrastructure spending, more stimulus).
But control of the Senate is still up in the air, with two Georgia run-off Senate races set to take place on January 5th.
The outcome of those run-off elections will decide whether the US government is under unified Democratic control, or divided. At the end of the day, investors should pay little attention.
Since 1928, the median 12-month return for the stock market was 10% under a divided government, and 10% under a Democratic-controlled government, according to data from Goldman Sachs.
So no matter what happens on January 5, don't make investment decisions based on the outcome.
Investors like gridlock, which could be the outcome if Republicans win at least one of the two Georgia Senate races. Investors also like fiscal spending initiatives from the government, which would be the likely outcome if Democrats take control of the Senate.
Either way, it's the best of both worlds for investors no matter which party wins in January.
At Ithaca Wealth Management, we build customized investment portfolios to help you compound your wealth. Reach out today to learn more, or visit www.ithacawealth.com
Your Investments In The News
- Costco issued a special dividend of $10 per share. Merck increased its dividend by 7%. TJ Maxx reinstated its dividend and increased it by 13% following a pause due to the pandemic.
- Eli Lilly's antibody drug baricitinib received Emergency Use Authorization from the FDA in the treatment of patients with COVID-19 after studies showed the drug reduced mortality by 35% to 70%.
- Amazon launched its own online pharmacy business, allowing US customers to order prescription medications for home delivery. Amazon Prime members will receive free discounts off certain medications and free 2-day shipping.
- The FDA approved Merck's Keytruda immunotherapy for the treatment of patients with triple-negative breast cancer. This marks the 27th cancer indication Keytruda has been approved for.
- Beat third quarter earnings estimates: Nvidia, TJ Maxx, Walmart, Home Depot, Cisco, Disney, McDonald's, American Water Works, PayPal, Waste Management, Honeywell, Starbucks, Apple, Amazon, Stryker, Intercontinental Exchange, Microsoft, Merck, Danaher, Abbott Laboratories, Thermo Fisher Scientific, Verizon, Proctor & Gamble, Intuitive Surgical, BlackRock, and JPMorgan.
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What To Watch This Week
If you're looking for something to watch this holiday week, consider The Queen's Gambit on Netflix. A story of how an orphan overcomes many odds to thrive in the male-dominated world of Chess. You don't need to like Chess to watch it, though I will report that since watching I have lost over 100 Chess games to the computer as I attempt to rise to the ranks of grandmaster Elizabeth Harmon. Thanks for reading, and please reach out with any feedback or questions.
All the best and have a safe and happy Thanksgiving!
Matthew Fox, CMT, MBA
Founder & Wealth Advisor