Everything Old Is New Again: A Look at Financial Markets Against the Backdrop of A Christmas Story

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You’re probably familiar with the old adage “everything old is new again.” Indeed, we’ve witnessed surprising revivals of fashion trends, hairstyles, and even pop music over the years. But this year’s return of the holiday classic A Christmas Story is making many people feel exceptionally nostalgic—especially those of us who grew up in the 1980s.

Originally released in 1983, A Christmas Story tells the story of 9-year-old Ralphie Parker, who only wants one thing for Christmas: a Red Ryder Range 200-Shot BB gun. Though everyone rejects Ralphie’s request, warning him, “You’ll shoot your eye out,” Ralphie’s father ultimately surprises him with the BB gun on Christmas morning.

Whether you grew up with A Christmas Story or first watched during a Christmas Day marathon as an adult, there’s something uniquely relatable about the Parker family and Ralphie’s story. And while many things have changed since Ralphie’s childhood in the 1940s, history usually finds a way to repeat itself.

As investment advisors, we’re keenly aware of how history tends to repeat itself in financial markets. So, in keeping with the “Everything old is new again” theme, we thought it would be interesting to examine the similarities and differences in the markets and economy between when A Christmas Story was set (1940), when it was released (1983), and today.

1940

In 1940, the U.S. was still recovering from the Great Depression, the most severe economic downturn of the 20th century. However, largely due to World War II, it was also the beginning of one of the longest periods of sustained economic growth in U.S. history.

The Great Depression began in 1929 and lasted until 1939, the same year Germany invaded Poland. During this period, the unemployment rate reached nearly 25%. By 1939, unemployment stood at 17%.

Initially, the market didn’t react much to the onset of World War II as many people expected the U.S. to stay out of it. However, when Hitler invaded France in May of 1940, the Dow Jones Industrial Average fell 17% between May 9, 1940 and June 22, 1940. The Dow finished the year down nearly 13%.

As the war progressed, demand from European countries for U.S. goods and a slow response from manufacturers led to supply shortages. U.S. citizens were given a book of stamps to purchase rationed essentials like meat, sugar, butter, and canned goods. Gasoline was also rationed.

These restrictions led to high household savings levels. Once the war ended, consumer demand for goods spiked, exacerbating existing supply shortages. As a result, inflation soared in the postwar 1940s.

Meanwhile, the U.S. government borrowed billions of dollars to finance wartime expenses. Between 1940 and 1945, government debt grew from $43 billion to $260 billion. The Federal Reserve also pursued aggressive monetary policy to stimulate the economy and reduce the interest burden on the U.S. government.

1983

The U.S. was in deep recession throughout 1982 as the Fed attempted to control rampant inflation. Corporate bankruptcies rose 50%, and farmers were hit particularly hard as agricultural exports declined.

However, the recession, along with falling oil prices and tight monetary policy, ultimately helped control the record-high inflation that persisted into the early 1980s. By April 1983, inflation had peaked and the U.S. unemployment rate was 10.2% and falling. Thus began one of the lengthiest periods of continuous economic growth since World War II.

Meanwhile, the U.S. stock market reached new highs as investors anticipated an economic rebound. In February 1983, the Dow Jones Industrial Average closed above 1,100 for the first time and finished the year up over 20%.

2022

The Covid-19 pandemic created a host of challenges that have plagued markets in 2022. In addition to ongoing supply chain issues, sky-high inflation and rising interest rates have investors worried that a recession is inevitable. Meanwhile, the U.S. stock market officially entered bear market territory earlier this year.

Interestingly, 2022 shares unique similarities with 1940 and 1983. In 1940, the U.S. was experiencing supply chain issues due to increased demand for wartime goods. And due to food and gas rations, U.S. households accumulated high levels of excess savings.

Similarly, the Covid-19 pandemic led to global supply chain issues, which were exacerbated by Russia’s invasion of Ukraine. In addition, pandemic lockdowns coupled with unprecedented government stimulus caused household savings levels to soar.

In both cases, the government spent exceptional levels in response to global crisis. At the same time, consumers had excess cash to spend coming out of both crises. These factors, combined with ongoing supply chain issues, contributed to the record-high inflation levels that followed.

Inflation also connects 2022 to 1983. Whereas rampant inflation finally returned to normal levels in 1983, the Fed is currently attempting to control inflation through similar measures.

In the early 1980s, a recession was unavoidable but ultimately curbed inflation. Today, it’s still unclear whether the Fed can achieve a soft landing as it attempts to control inflation.

What We Can Learn from A Christmas Story and History

In A Christmas Story, 9-year-old Ralphie becomes singularly focused on one gift. Even though he shares several other positive memories throughout the movie, the Red Ryder Range 200-Shot BB gun alone had the power to make or break his Christmas that year.

Investors also tend to have a bad habit of focusing on what’s right in front of us instead of the big picture. Indeed, the events of the day can completely change our attitude towards investing. Yet in reality, there are a variety of factors over time—some less noticeable than others—that determine an investor’s success.

Fortunately, zooming out over several decades shows that today’s events aren’t unique. We’ve experienced high inflation, recessions, and shaky markets before. And to date, the U.S. economy and stock market have consistently recovered. While there are no guarantees, there are reasons to believe this time will be no different.

As we enter the holiday season, we encourage you to focus on the big picture and what matters most to you—whether that’s your family, your health, or your purpose in life. We’ll continue to do our part to help keep your finances on track. Happy holidays!

 

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