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Return of the Roaring Twenties?

The 2010s had been a lost decade of weak economic growth, erratic stock market returns, and stagnating living standards. 2020s is off to a disappointing start, but some believe the U.S. economy and the U.S. stock market will once again shine.


Optimism was developing as 2019 ended, as many investors expected things were about to change and the years ahead would be much better.


Some believe the 2020s is a repeat of the Roaring Twenties, a decade of explosive growth and good times that followed the First World War.


One hundred years ago, incorporating electric machinery into the U.S. manufacturing process accelerated productivity and growth. Many purchased cars, household appliances, and housing as prosperity soared to unprecedented levels, leading to one of the biggest bull stock markets in history, especially if you factor in inflation.


The past three years have been anything but roaring. It started with a once-in-a-century Pandemic (COVID-19) that shut down the global economy, disrupting lives and creating widespread supply chain bottlenecks.


The impact continues to ripple through the global economy today, as inflationary pressures remain stubbornly high and global economic growth is erratic. Rolling geopolitical crises, including the Ukraine-Russia war, the US and China trade wars, and now the Israel-Hamas war, have many fearful that this may lead to World War III.


If you think the news was bad in 2020, consider the 1920s. The 1920s also started dismally before picking up steam. The nation suffered through the aftermath of World War I. A once-a-century pandemic, namely the Spanish flu, killed up to 50 million people worldwide. There was a civil war in the Soviet Union. Germany suffered hyperinflation in 1923. A major recession and steep stock market selloff also occurred in 1920.


However, starting in the second half of the 1920s, the global economy, specifically the U.S. economy and stock market, picked momentum and soared into the decade.


Is there time for the U.S. economy and stocks to gain momentum and soar into the back half of the century?


Historically, bad news often leads to economic and market growth.

Over 100 years ago, a new industrial revolution driven by electric machinery deployed within the manufacturing process spurred innovation, productivity, and economic growth.


There is reason for hope in the 2020s, as the recent digital revolution can spur widespread growth in the global economy.


New technologies such as Artificial Intelligence and Robotics, DNA, Biotechnology, Medical Technology breakthroughs, Quantum computing, Blockchain technology, and online Peer-to-Peer transactions can wake a struggling global economy and ignite the next economic and stock market growth cycle.


Remember, history does not always repeat itself. But it tends to rhyme.


Although the Dow Jones Industrial Average (INDU) may appear to be in a lackluster trading range between 28,600 and 37,000 for the past three years, it is not wise to bet against the second-oldest U.S. stock market index, at least not from a longer-term perspective.


INDU has doubled numerous times in the past four decades, approximately once every seven to eight years.


INDU continues with its technical base between 28,669.94 (10/13/22 low) and 36,952.65 (1/5/22 high) via a 3-year head and shoulders bottom pattern. The head is 28,660.94 (10/13/22). The left shoulders are 32,272.64 (2/24/22 low) and 29,653.29 (6/17/22 low). The right shoulders are 31,429.82 (3/15/23 low) and 32,327.20 (10/27/3 low). And the neckline is 36,952.64 (1/5/22 all-time high). The neckline breakout solidifies the 10/13/22 low as a market bottom and signals the resumption of the structural bull. The projected INDU targets are 45,244.36 (H/S bottom breakout target) and 48,533.35 (161.8% Fibonacci Extension projection).


Near-term support is the converging 50-day and 200-day moving averages (33,812.36/33,816.82) and below 32,273-32,327 (Feb 2022 and Oct 2023 lows or left shoulders 1, and right shoulders 2), 31,430 (3/15/23 low or the right shoulder 1), 29,653 (6/17/22 low or the left shoulder 2), and 28,661 (10/13/22 low and the head). The 50% retracement (27,583) from Mar 2020 to Jan 2022 rally, the 10/30/20 low (26,144), and the 61.8% retracement (25,372) remain crucial support. Violation warns of a cyclical bear decline.


Source: Chart courtesy of StockCharts.com

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