Market update: The Return of the Roaring Twenties?

It’s been a while since my last update and to be fair not a lot has been going on in the investment world.We continue to progress the excellent vaccination roll out in the UK with many other countries catching up and showing signs of success.

This is all good for a recovering economy and let’s hope we’ve seen the last of lock downs. I have been reading about some interesting parallels with the 1920’s and the economic recovery from World War 1 and the Spanish Flu pandemic.  

After the First World War and a global pandemic, the 1920s saw a decade of economic, cultural and artistic dynamism which transformed the world. Could the 2020s see a repeat of the Roaring Twenties? Imagine the world is coming out of a major pandemic, after years of economic and political turmoil. The United States has just had a presidential election where the winner ran on a message of “returning to normalcy”, promising a new era of more stable politics and economic growth. The year… is 1920. 

In the US election of 1920, Warren G. Harding ran for President with the campaign slogan: “Return to normalcy”. After the chaos of the First World War, followed by the human and economic tragedy of the 1918-1919 Spanish Influenza pandemic, a political message of stability and “normalcy” resonated with voters. The exhausted population of 1920 would be forgiven for having viewed their future as bleak. But what happened in the subsequent decade was remarkable in how different it was from the preceding decade of conflict and pandemic. The 1920s saw unprecedented technological development, economic growth in the developed world and a creative explosion that still influences modern culture today. Perhaps the 2020s, following a decade of political turmoil and a serious pandemic, could be about to surprise everyone. 

Mark Twain is credited with having said: “History may not repeat itself. But it rhymes.” Future historians may come to view the 1920s and the 2020s as decades when history rhymed. In the year 1920 and in the year 2020, investors found themselves in the midst of a pandemic ravaged economy where activity (both economic and cultural) had been suppressed, where consumers had ‘pent up demand’ from higher savings due to forgone spending during a pandemic, and where technological developments were set to transform the world around them over the coming decade. When we look at the investment outlook we cannot help but be optimistic about the likelihood that the 2020s will be a decade of growth and transformation. 

The lockdown of much of the world in response to the COVID-19 pandemic has forced lasting behavioural changes. Foremost among these has been a migration of millions of new users to digital platforms. This has driven a major acceleration in the Ecommerce trend, with years of future adoption of digital platforms happening in just a few months in 2020. What is often under-appreciated about this incredible change is that the shift of our personal and economic lives onto digital platforms is irrevocable. This transformational change has generated the growth of the digital economy, both in terms of its population and economic activity, does not stop when the COVID-19 pandemic is over.  

The digital future for the developed world is happening now in China, the world’s largest ecommerce market at over $2 trillion in value. The Chinese ecommerce market is set to more than double in size by 2023. The question is not whether the rest of the world will look like China, but how quickly it will catch up. 

On the topic of technological advancement I thought I would share with you this graphic that shows how much the big Western Tech firms make every minute. I couldn’t quite believe these number myself, imagine a company making nearly one million dollars of revenue EVERY single minute! That’s not to say it all converts to profit.  

 

  

An interesting point around some of these firms is that they are all referred to as Technology stocks. Quite simply they are not, they are firms in various sectors that use technology as their platform for distribution. Facebook and Alphabet are advertising firms, TESLA is primarily a developer of batteries and electric cars, Amazon is primarily a retailer. We constantly here about a Tech Bubble forming and there may well be one in the true technology space but my feeling is that these particular firms are here to stay. They will continue to thrive in their relevant sectors and the clever people they employ will lead them on to bigger and better things regardless of any short term market volatility, which as you all know is out of our control so nothing to worry about.  

It certainly feels like the light at the end of the Pandemic tunnel is shining brighter and that we can all return to some form of normality in the coming months. Now is the time for you to start planning your next adventures knowing that we are here looking after your financial plans to make these adventures happen. I’ll be in touch when your next review is due but feel free to call for a chat if you want to.