Ihave never believed you can see the future by comparing current economic factors to the past.
The current economic conditions validate my belief: they are so different that making that type of comparison would not provide valid signals.
Instead of trying to guess the future based on history, let’s look at the last three years to start to get an idea of what the next phase may look like…
The Crash. In early 2020, the coronavirus pandemic spread across the globe. The U.S. federal government ordered much of the economy to shut down. The stock market crashed by 35% (S&P 500) within a few weeks. For one day, crude oil traded for a negative $37 per barrel. Chaos reigned. No one knew if businesses would even be able to continue. Congress passed, and President Trump signed, the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES), which paid hundreds of billions of dollars to businesses and individuals.
The Explosion. The 2020 stock bear market turned out to be the shortest in history. The CARES Act put cash in the pockets of stay-at-home workers. Online businesses saw sales take off. Trading stocks on apps like Robinhood became the thing to do. The Federal Reserve slashed the feds fund rate to zero percent.
The stock market recovered completely by late September 2020. The bull market continued through the rest of 2020 and all of 2021. From the March 2020 low, the S&P 500 gained 120%. The tech-heavy Nasdaq 100 stock index gained 140%. Meme stocks became a thing in 2021, with new traders making huge gains on near-bankrupt stocks like AMC Entertainment (AMC), GameStop (GME), and Bed Bath & Beyond (BBBY).
Many young, new-to-the-market traders believed that making money and getting rich was easy. There was no reason to go back to work if you could stay home and play the market like a video game, winning on every try.
Igniting Inflation. For January 2021, inflation came in at…
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