Published May 23rd, 2024 by JMSCapitalGroup

CIO’s Larry Light reviews past projections of the Baby Boomer generation, amidst its impending retirement years, upon various areas of the market. First and foremost is the theory that boomers would retreat from the stock market, causing equities to plummet. People over 70 owned 33% of stocks and mutual funds in 2021, up from 22% in 2006, so there is at least the potential for negative repercussions for stocks. However, stocks have continued to rise over time, and Light cites several explanations as to why. With more people living into their nineties, older individuals may opt to stay invested in equities over a longer time horizon, and make withdrawals more gradually. Younger cohorts would be expected to increase their equity holdings over the coming years, as would the immigrant population, which is relatively youthful, so that there would be strong demand for equities sold off by Baby Boomers.

With respect to bonds, Light cites research from Goldman Sachs suggesting that current demographics may be putting upward pressure on yields. As bonds reach maturity, older individuals would be expected to use a significant fraction of the money for living expenses rather than reinvest in additional bonds. Lower demand for bonds would then translate into higher yields and lower bond prices.

In discussing the housing market, Light notes a famous 1989 prediction by economist N. Gregory Mankiw that the Baby Boomers would inflate the housing market, then deflate it as they retired and sold their homes. But Boomers may not be selling. Light argues that the 2008 Financial Crisis curtailed homebuilding over the past 15 years, and that higher mortgage rates make moving less appealing. Demographics are important, but as is often the case, a longer-term prediction can find itself swamped by other unforeseen factors.

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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.

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