History does not repeat itself, but it may rhyme.

It’s the Roaring 20’s, and the massive market move has created enormous wealth creation during this decade. While history does not repeat itself, it can rhyme, and this parallel makes for a worthwhile conversation.

From August 1921 to September 1929, the Dow rose six-fold, from 63 to 381, powered by the transformational technologies of the age: electrification, the industrial revolution, and mass production on the assembly line.

 
During the decade 100 years ago, real GDP compounded at 4% per annum as productivity surged. While innovation was real, the 1929 stock market crash led to a run on the banking system, and given the 89% peak-to-trough decline in equities 25 years to fully recover (chart below).

Unlike the 1920’s, our banking system is incredibly healthy today, and while the equity market is up 132% this decade, P/E multiples reasonable (19x forward earnings) as earnings growth are strong and the economy is growing in the 2% to 3% range.

Leading up to 1929, investors bought stock with just 10% down, financing the rest with broker/bank call loans that led to margin calls, forced selling and the market collapse. The economic development was real, while excess speculation and a fragile financing market turned a boom in the financial markets to a bust as the perils of Wall Street spread to Main Street.

I am not calling for a crash; today’s equity valuations are reasonable with earnings that are only modestly above its 10-year average, and earnings growth in 2026 exceeds 20% y-o-y, its strongest stretch in years. It is not 1929, and it is not the dawn of dot-com burst when price detached from earnings.

We should all keep a close eye on leverage. FINRA margin debt is ~$1.5 trillion, up 50% over the past year, or 4% of GDP vs. a median of 1.5% historically. Andrew Ross Sorkin’s brilliantly written book “1929” is a history lesson that excessive leverage driven by greed and speculation is dangerous.

Morgan Stanley and Goldman Sachs estimate the AI buildout will be >$1.1 trillion in 2027 and 2028, respectively. While the large hyperscalers lead the way, and AI transforms industry leading to massive productivity gains, the biggest strain is on capital as governments compete with private sector to attract capital. The stress today, is not leverage or valuations, it is the need for capital, providing capital allocators with unique and important choices.

The lesson of the first Roaring 20’s that is most relevant to today is determine if there is a widespread mis-allocation of capital (e.g. speculative leverage, bad loans, bubbles) that can have a material knock-on affect(s). With more than 60% of households now owning equities, versus only 10% in 1929, the real economy is far more wired to the market than it was then, but at the same time, this development has led to massive wealth creation, which is certainly net-positive.