The Stock Market Has Tracked The Population Of 35-39 Year-Olds For 112 Years

One trend that often gets overlooked is the “echo boom,” the expectation that the number of baby boomers’ children will be bigger than that of the boomers themselves.

Citi’s Tobias Levkovich thinks this is a very bullish trend for stocks.  He argues that as the echo boomers enter the age range of 35-39, they’ll start saving aggressively in the stock market.  This is one of the elements of Citi’s “Raging Bull Thesis.”

In a new note to clients, Citi’s Tobias Levkovich includes a chart overlaying the size of that demographic with the S&P 500.

From his note:

The intriguing story though is that the 35-39 year old cohort of Americans is about to start growing again in 2013 after peaking in 2000 and declining since alongside equity market trends (see Figure 5). The baby boom echo or children of the baby boomers are beginning to enter their savings years based on Bureau of Census data and are thus likely to buy stocks as a means to do so in order to build retirement nest eggs and saving for their children’s education. Leaving cash in the bank earning a negative real yield or trying to consider retirement by simply buying 10-year US Treasuries generating less than 2% yields seems like a Sisyphean task. This group of savers would mirror their parents buying stocks approach of the 1980s after a paltry prior decade for equity markets. Thus, a poor previous 10-year record is not an argument for not buying shares since those losses were borne by an earlier generation and behavioural economics suggests that one who does not experience personal loss cannot internalize the feeling that would prevent action. Indeed, the past 112 years of market history implies that after a lousy decade for stocks, the future looks far brighter (see Figure 6).

Note the dips.


Photo: Citi Research

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