Thank Goodness for Millennials; They’ll Power U.S. Markets
Millennials come in for a certain amount of scorn—particularly by older Baby Boomers—in the popular imagination but investors should say “Thank Goodness!” for that age cohort.
We need to thank them for the impressive resilience of the American economy, as evidenced by the recent November jobs report.
That report, released Dec. 6, showed employers added 266,000 jobs in November and unemployment matched a 50-year low of 3.5%, topping expectations. The news spurred markets higher on that Friday after a poor week.
This bounce up is supported by more than a “performance year end chase” since one could have argued stocks had already seen their high for the year.
Let me make a few points about Millennials, which grabbed the attention of the media last week.
1) The large size of the Millennial cohort is causing an acceleration of U.S. GDP multiplier/growth. More importantly, I believe the investor framework about the US economy is changing. The US seems to be largely avoiding the sluggishness seen in Asia and Europe, stumping many economists who expected the U.S. to sink with the rest of the world.
Why is this? I have asserted the US is increasingly de-coupling from the rest of the world because of these building demographic tailwinds. In short, we can thank Millennials, who are now entering their prime income years. (Or we can thank their parents for having kids!)
Take a look at the chart below. This is showing the 5-year change in people age 30-49 by region.
The U.S. is seeing an acceleration of this cohort, which is set to reach 6% in a few years.
Guess what, people aged 30-49 years are the biggest contributors to economic growth, because of their consumption of debt leverage and life cycle habits (babies, houses purchases, etc.). They act as the real “economic multiplier.”
Chase Bank data also shows this is the only age group seeing consistent year on year credit card spending growth over time. This age group drives growth and as the chart below shows, this is the “sweet spot,” This should continue for a few years.
2) This tailwind from millennials seems to be primarily a US thing. as it is seeing massive growth divergence of 30-49 vs Europe, China and Japan. If this cohort is the “GDP multiplier,” it suggests the tailwinds are building for US but becoming headwinds overseas.
3) The rest of world, however, isn’t going to sit around while U.S. has the “population growth” advantage. There are two drivers of total GDP growth: workforce and productivity, so if the workforce is a headwind, the rest of world will try to juice productivity. How? Tech spend, through increasing automation. The world is going “asset heavy” and likely will gorge on new technologies. Admittedly tech stocks have done well this year, but I think U.S. technology stocks are entering a period of seriously increased demand. And as we wrote in the past, this will lead to the tech weight in the SPX approaching an outsized 50%.
4) I believe technology and automation will power the next leg of bull market.
Bottom line: I see continued strength in U.S. economy and thus, U.S. equities. Stocks should be strong into year end, with the Standard & Poor’s 500 index potentially above 3,200.
Figure: Comparative matrix of risk/reward drivers in 2019
Per FS Insight
Figure: FS Insight Portfolio Strategy Summary – Relative to S&P 500
** Performance is calculated since strategy introduction, 1/10/2019
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