In a recent interview with CNBC, Chiavarone says there’s at least a decade left in this rally due to a demographic tailwind that’s soon to hit.
“Millennials are entering the workforce, but their wages are going to be under pressure their whole career,” he explained to CNBC’s “Trading Nation” on Friday. “They won’t make enough money to pay down their debt, fund their life and fund retirement where there is no pension. So, they’re going to need equities.”Furthermore, Chiavarone says bull markets typically last 15 to 20 years, and, by his calculations, this one hasn’t even topped 5 years yet.“The risk is not being in this market,” says Chiavarone, who helps run the Federated Global Allocation Fund FSTBX.The firm’s current price target is for 2,750 on the S&P SPX, by the end of next year and 3,000 for 2019.“We are probably frankly low on both of them,” he said. “Tax reform could push up the markets.” That’s not to say there won’t be some pain along the way, specifically the potential for a recession in 2020 and 2021, according to Chiavarone.What’s an investor to do in that case? “Buy the recession,” he said.
Millennials who don’t have any money, but do have tons of student debt, will be investing in stocks, even if they lose their job in a recession, because they are worried about their retirement.
Wow.
Someone remind me of this post in a few years.
Mike “Mish” Shedlock
They are using the money they don’t have to buy stocks? Makes sense to me
I fully believe Bitcoin to be in a bubble that dwarfs the tulip bulb mania. A week ago Bitcoin was up over 800% in 12 months. That’s incredible; however, since its inception in 2010 at $0.05 Bitcoin is up ($7800 / $0.05) * 100% = 15600000%. Millennials who have spare change to “invest” in Bitcoin certainly won’t have anything for buying stocks when the bubble pops.
1 in 3 Millennials would rather invest in Bitcoin than stocks. https://bitcoinist.com/are-millennials-beginning-to-prefer-bitcoin-over-stocks/
As for stocks, money-supply growth (in the U.S.) is falling rapidly and has been for nearly a year now … BoJ money-printing has pulled back somewhat as a result of their new ‘yield-targeting’ strategy … and the ECB is about to cut their QE by half. Oh, and rates are about to rise again in December. In other words, the juice that has kept this bubble aloft is draining away. The effect of this is lagged … so the clock is ticking.
The Boomers had the real firepower (because homes didn’t cost an arm and a leg) and they net are liquidating stocks… the Millenials have next to nothing because the homes they are buying are orders of magnitude more expensive and debt service is much greater (even if interest rates are lower). Demographics are not a tailwind as Chiavarone says – they are a headwind. Sounds like he just had a brain-fart and these fallacious thoughts bubbled into his head.
Boomer/retiree equity liquidation will completely suffocate any equity accumulation that Millennials can muster… the former holdings being orders of magnitude larger than the potential volume of the latter…
A more realistic reason for why this guy just may technically be right, is that the valuation of the stock market is by now largely a measure of the size of wealth differences in the US.
An army of millennials without a dime to their name after taxes rent and debt service, will not be able to demand a single CPI basket good whatsoever. And the 1-5% who own and buy all stocks, already have every CPI good they could hope to consume in a million lifetimes.
Leaving the Fed the option to print up and fork over quadrillions with which the latter can buy stocks for, without the slightest concern that it’s favorite harebrained measure for “inflation” will rise.
The key is; the guy is a fund manager selling his book. A dime a dozen on cable networks.
Understood that young folks starting families spend a lot of money but my personal leading indicators are all flashing red. #1 Hearing way too much about Donald Trump. #2 Hearing advertisements for real estate flipping schools. #3 Advertisements for stock market investment schools. Yet to come out here – #4 Seeing signs outside apartment complexes offering free TV’s or months of rent. I seem to remember all these come before a market crash.
yes, long term, slow investment in 401k accounts is exactly what he is talking about. This is clearly the driving force for the next boom. However, meanwhile we have the baby boom set about to retire in the next 5 years, and they will be liquidating equities over time during retirement. Which will be the larger effect? That is the mystery.
Lol – I like your insight El Tedo! Just from my own point of view, my kids are millennials, and they were able to land decent jobs, thank God, but I’ve never even heard them mention stocks or the like. They have between $25-50k in student loans (which I guess isn’t bad these days). They are really just interested in buying a house, starting a family, etc. They do have 401ks which are likely at least partially invested in equities, so maybe that is part of what this guy is talking about. Then again, xil may have a point in that some percentage of millennials are using leverage to invest.
Ted, perhaps the money they save on rent by living in their parents basements will all go to into S&P index ETFs. More likely, they will increasingly elect Bernie Sanders/Elisabeth Warren type candidates because they can’t provide for themselves.
@Ted_Smoothie, margin accounts, credit cards
if they can’t even pay off their student loans, where are they getting the extra cash to buy stocks?