The U.S. stock market is currently basking in its success, with the S&P 500 index notching up yet another record close. However, lurking within the shadows lies a potential threat that needs to be addressed - and it's surprisingly connected to our grandmothers and grandfathers.
Renowned market economist, David Rosenberg, drawing from his experience at Merrill Lynch and currently heading Rosenberg Research, has shed light on what he describes as a "sinister downside risk." In a recent note shared with clients, Rosenberg warns about the alarming rise in the share of U.S. stocks owned by individuals in or close to retirement age - a staggering 80% record high. This poses a significant vulnerability as these older Americans may flood the market while hastily attempting to exit during the next market downturn.
Rosenberg emphasizes that if a downturn were to materialize, the resulting selling pressure from this demographic could potentially exacerbate the situation, causing a powerful spiral effect that ripples into consumer spending.
While there's been much talk about the popular meme-stock craze and the surge of young Americans actively trading on platforms like Robinhood, Rosenberg points out that retirees still dominate the stock market landscape.
With this newfound insight, it is crucial to carefully consider the impact of retirees and their potential role in shaping future market dynamics.
The Changing Demographics of Stock Ownership
Recent data reveals a significant shift in the stock market's demographics, with the majority of ownership now held by individuals above 55 years old. Currently, this age group accounts for 80% of the market, a notable increase from 75% pre-COVID-19, 65% before the 2008 financial crisis, and an average below 60% in the 1990s and 2000s. Additionally, individuals over 70 years old now possess 30% of the market share.
While these statistics may seem innocuous, there are concerns regarding the potential impact on the U.S. markets and economy. One area of concern is the heightened risk during market downturns. In such scenarios, retirees, who hold a significant amount of stocks, may be forced to rebalance their portfolios quickly. This would likely involve favoring fixed income and cash investments over stocks.
The consequences of these actions could be far-reaching. Notably, reduced stock ownership amongst retirees may result in a decrease in consumer spending. As a result, various sectors, including elective medical care, leisure activities, as well as travel and hospitality industries, might face the repercussions.
Despite these concerns, U.S. stocks are expected to open mostly higher on Thursday. Index futures on the S&P 500 are set to open marginally higher, while futures on the tech-heavy Nasdaq-100 are anticipated to rise by 0.2% at the opening bell. Conversely, futures tied to the Dow Jones Industrial Average are pointing towards a slightly lower open.