A Lost Decade… or a Roaring Decade?

By TradeSmith Research Team

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Is this a Lost Decade or a new Roaring ’20s? | A more optimistic trading plan | The Fed sucked the air out of the room, and that’s OK | The best stock-picking strategy for any weather

More than a few newsletter writers have drawn comparisons between the decade of the 2020s and that of the 1970s.

I’ve even done it a couple times these past few months.

Because the resemblance is, in many worrying ways, uncanny.

The 1970s were marked by high energy prices… stubborn inflation… high interest rates… the U.S. government financing overseas conflicts… relatively weak economic growth… and rampant political division.

Sounds a bit too familiar for comfort.

But then again, we also see some other, more positive familiarities when we look at another decade: the 1920s…

Those ’20s began with the end of the Spanish Flu pandemic, much like the 2020s started with COVID. But afterward came a period of great economic expansion… with the S&P 500 returning more than 250% in the decade to follow.

This period also saw the advent of the assembly line, which yielded mass-production automobiles and home appliances — two key innovations of the era. These greatly benefitted people’s quality of life, creating a ton of economic value.

The parallel today, of course, is artificial intelligence… which has promised to shake up the way we live and work — hopefully mostly for the better.

So, which parallel scenario are we in — the ’70s or the ’20s? What should we plan for? Another lost decade… or a roaring one?

Alas, I don’t have a crystal ball — nobody does. We can’t call it for certain. But what we can do is prepare for the latter, just as we already have for the former.

We’ll do that today. We’ll also check in on the Fed-induced Wednesday selloff, to see if it has legs.

And I’ll introduce you to a man who says the next 12 months can easily hand more than $60,000 in profits to anyone willing to follow his guidance — whether we wind up with a slumping ’70s-style market, a new roaring ’20s, or anything in between.

❖ First, let’s see what a Roaring 2020’s would look like…

Just like when we studied the ‘70s, I’ve taken the trading data for the S&P 500 from January 1920 to December 1929 (chart below, yellow line) and normalized it to today’s price action (blue line).

If the S&P 500 behaves exactly as it did back then (which it almost certainly won’t), we would see the index exceed 11,000 by the end of this decade. And, in fact, the S&P 500 is already outpacing the early gains of the 1920s by a considerable margin.

It really puts our current decade’s gains into valuable perspective. The stock market’s moves, especially in 2021, felt at times obscene. But this chart shows us what exponential short-term growth in stock prices really looks like — the kind we haven’t seen since the 1990’s dot-com bubble.

And make no mistake, the Roaring ’20s were a bubble that wound up bursting and eventually leading to the Great Depression. If stocks do wind up rising 250% in the 2020s, it could just as easily be a prelude to a meltdown — just as it was then.

So, assuming a Roaring 2020s does happen, how should one trade it?

❖ Leading companies dominated the Roaring ’20s…

The stock market was considerably smaller, at least in a nominal sense, in 1920.

But the names that dominated it were big then and only bigger now.

General Electric (GE), Coca Cola (KO), General Motors (GM), Hershey (HSY), and U.S. Steel (X) were some of the biggest companies in the U.S. back then. All of them were instrumental in creating the industrial machines and consumer products that defined the period.

Their dominant position, serving the unique needs of the era, helped them capture the majority of the value… and entrench them for well over 100 years.

The leaders of today, this time in high tech, may prove to do the same. Amazon (AMZN)… Apple (AAPL)… Google (GOOG)… Meta Platforms (META)… Microsoft (MSFT).

When you sit down and think about it, these are the industrial giants of our era, 100 years later.

They serve some of the most important industrial and consumer needs in the market — this time, all digital.

A safe bet for a roaring 2020s? Buy high-quality technology companies like the ones above. Especially with the trend of A.I. not seeming to slow down anytime soon.

How do you know which ones are quality? Check the Business Quality Score, of course…

TradeSmith’s proprietary fundamental metric boils down all the top factors of great stocks — stability, return on invested capital, growth rates, and more — into a simple number. The closer to 100, the better the stock.

Here’s how the above five stocks rank…

AMZN: 84

AAPL: 99

GOOG: 91

META: 85

MSFT: 90

Safe to say, stocks like these should be in your portfolio… and bought on big dips. And you should use the Business Quality Score, part of Ratings by TradeSmith, to find more like them.

❖ Now, about Wednesday afternoon…

As I warned on Wednesday morning, we did not wind up getting a rate cut that afternoon.

And according to our old buddy Jerome, we probably won’t get one at the next meeting in March, either… unless inflation really slows down.

That really sucked the air out of the room, with stocks slumping big-time after the FOMC minutes were released.

Allow me a rare borrow from CNBC, which sums it up nicely:

During Fed Chair Jerome Powell’s news conference, he said policymakers are waiting to see additional data to verify that the trends are continuing. He also noted that a March rate cut is unlikely.

“I don’t think it’s likely that the committee will reach a level of confidence by the [March meeting],” Powell said.

“We want to see more good data. It’s not that we’re looking for better data, we’re looking for a continuation of the good data we’ve been seeing,” he added.

Stocks were already underwater by the time Powell took the podium, but fell deeper into negative territory by the close. The Nasdaq 100 fared the worst, falling as much as 2% from the previous session. And the recovery, as of this writing, feels somewhat hesitant.

To be fair, the market is up considerably over the past few months. Actually, that’s an understatement. The Nasdaq is up more than 22% from the October lows.

A breather is in order. Potentially a long one.

But that shouldn’t be something to fear.

With the way everything’s looking, we should use that breather to our advantage…

❖ One legendary stock picker thinks you could make an extra $60k this year…

That number sure perked my ears up when I first heard it.

I’m getting married this year… and have some ambitious honeymoon plans. I could use an extra 60 grand. I’m sure most of us could.

The claim comes from Louis Navellier, an ace stock picker who’s been using advanced market analysis systems to beat the Street at its own game for decades.

And yes, Louis thinks this $60,000 windfall is possible through stock investing alone — nothing fancy.

But what really caught my attention is what Louis says about the U.S. economy in this video he recently shared with his readers.

He makes a number of salient points about how this economy is not working for a lot of people… and how it’s quickly leaving some honest folks behind.

The culprit is not just inflation… but the relationship of inflation and income. Incomes haven’t kept pace with inflation in many years. The problem’s only getting worse with time.

That’s why Louis is encouraging Americans who feel a little behind on retirement to check out his unique, but refreshingly simple method for playing “catch-up.”

With this method, the three plays Louis recommended each month in 2023 paid out an average profit of $1,485… (A total of $53,460, for those keeping score.)

And now, the system just got a huge A.I. upgrade… taking it to the next level.

This upgrade is why he’s so confident that, over the next 12 months, this system could do even better and hand out $60k to anyone willing to follow it.

If you’re the kind of investor who likes to keep things simple and doesn’t want to stay glued to the screen for day-trading opportunities, this is exactly the kind of thing you need.

So I highly recommend you check it out while you can. From what I hear, it won’t be available much longer.

That’ll wrap it for this week.

But for the weekend ahead, be sure to tune in tomorrow afternoon for an exclusive interview with TradeSmith’s own stock-picking ace, Jason Bodner. There we’ll discuss one of the biggest stock wins he’s shared with readers — up almost 100% in 2024 alone — and what he sees coming for the market.

To your health and wealth,

Michael Salvatore
Editor, TradeSmith Daily

P.S. What do you think about comparisons to the 1920s and 1970s? Are we headed for an epic meltdown by the end of the decade? I always enjoy hearing from TradeSmith Daily readers like you. Share your thoughts on the Roaring 2020s, the Federal Reserve, or anything else. You can always reach me at [email protected].