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Structural and Generational Trends

Updated: Dec 17, 2020

Transfer of Wealth and its Influence on Financial Markets


The accumulation of wealth and the subsequent transfer of wealth from one generation to the next generation can dramatically impact consumer spending, housing markets, savings, investments, and retirement planning. For instance, when a generation enters their wealth accumulation phase (typically start at 35-years old), they tend to exert an undue influence on the economy and hence the financial markets. Depending on the degree of influence, it can have a profound impact on the next structural bull or the next structural bear trend in stocks and even on generational trends. There have been numerous generational shifts that have managed to influence the economy and hence the financial markets. Most recently, the Baby Boomers Generation (those born between 1946 and 1964) single-handedly spur on one of the greatest structural bull markets in our lifetime, namely the 1982-2000 structural bull trend. The Millennials or Generation Y (born during 1980-1994) will now play an increasingly pivotal role in the current May 2013 to present structural bull.


Structural Trends (8 to 20-years in duration)


The Millennials are tech-savvy as they grew up with computers and are avid users of the internet and social media. They have also experienced the Great Recession and witnessed the 9/11 terrorist attack. This year the oldest of Generation Y turns 40. Because of their large size of over 95 million strong, they can directly influence the U.S. economy and alter the direction of the US financial markets. Although the bears believe the current bull run is nearing an end, if the Millennials continue with their wealth accumulation mode, then the current bull (now 7-years old) can sustain until 2033 when the youngest of Gen Y turns 39, and the oldest turns 53.


Generational Shifts (35 to 42-years)


In the past 100-years, there have been three-generational trend shifts in U.S. stocks (SPX Index). The generational lows occurred along the lower trend line (red dash line - 1,335-1,550). The middle blue trend line (2,431) is the equilibrium level where the 10-year moving average is also trending higher at 2,298. The upper green trend line (4,597) is the generational high. It is uncanny the two extreme bullish market periods also coincided with speculative bull rallies (i.e., 1921-1929 roaring 20s and 1982-2000 tech/telecom bull). Connecting the tops of the two prior structural bulls (1929 - 31.30 and 2000 - 1,553.11) places SPX at a high of 4,597. Will this be the structural high for SPX?


Generational Trends


Since 1928, it is uncanny the SPX Index has experienced generational lows and highs spanning almost every 35-42 years or so. For instance, the generational lows during 1932 (4.40), 1974 (60.96), and 2009 (666.79) coincided with pivotal bear market bottoms. It is also interesting to note the generational lows and highs have coincided closely with periods of the enormous transfer of wealth or the lack of the transfer of wealth from one generation to the next. For instance, the generational shift from the Silent Generation (born during 1925-1945) to the Baby Boomers (born during 1946-1964) led to the 1982-2000 structural bull. If a generational low developed during 2009, then does this imply the next generational low may not occur until many decades from now, possibly during 2044/2051?


Factors that Shape the Generation Framework


It often takes decades for the transfer of wealth to have a material impact on financial assets such as savings, home purchases, IRA funding, 401K retirement plans, and stock/bond investment positions. It is important to note that many factors tend to shape the generation framework. However, three are likely responsible for an emerging new generation shift. (1) Socio-Economic conditions represent a significant shift in values, culture, and issues that influence economic conditions. An example is the Great Depression. This period had a profound influence on the Lost Generation (born from 1890 to 1915). (2) Technology/Industrial Revolutions/Shifts tend to influence social/business activities, behaviors, and the economy. For instance, the emergence of the personal computer during the late-1970s to the early-1980s. (3) Time of war can also contribute to the shifting of the generational framework. World War I and II and the Vietnam War are three major conflicts that shaped the mindsets and values of several generations.


Extrapolation of Generational Trends


By extrapolating the generational SPX trends, such as the internal trend line (blue dash line) that dates to 1929, it may be possible to forecast the price of the SPX in the distant future. Based on the current pace of the transfer of wealth trend of the Baby Boomers to the Millennials, this would imply an SPX price closer to 9,145 (by 2044) and possibly as high as 13,748 (by 2051). One important point to mention, the internal trend (blue line) at 2,431, and the 10-year moving average (2,298) may offer critical support on any market setback. A final point worth mentioning, a convincing breach below its blue internal trend line may also warn of the start of the next structural bear market trend leading to a retest of May 2013 structural breakout (1,595), and below this to the bottom of its generational low (red-line at 1,335-1,550).


Generations from 1890 to 2024


Lost Generation: Born during 1890-1915


This generation came of age during WW I. The "Lost" refers to the great confusion and aimlessness among the war's survivors in the years following post-war. The term is also a reference to a group of artists, American Ex-pat writers, living in Paris Post WW I (i.e., Ernest Hemingway). At age 35-years, this generation suffered through the Great Depression and the structural bear market of 1929-1949.


Greatest Generation: Born during 1910-1924


Known as the G.I. Joe generation and the WW II generation. Parents of Baby Boomers. Lived through and experienced the hardships of the Great Depression. They later fought in WW II. After returning home from war worked in the industries that contributed to the winning of WW II.


Silent Generation: Born during 1925-1945


This generation grew up during the Great Depression. And as such, they had low expectations and suffered hard times. They are known as the Silent Generation. As a group, they were not loud and did not protest since there were no major World Wars during this period. When they turn 35 years old, they endured the stagflation period of the 1966-1982 secular trading range market.


Baby Boomers: Born during 1946-1964


Currently, they are 76 million strong. This generation grew up during a time of great prosperity and the absence of any World Wars. At 35 years of age, this is the start of their wealth creation period. They married, brought their first house, had kids, and began to invest for their children's education (529s) and to fund their retirements (IRAs, 401Ks, and pension plans). Their collective spending and investing led to the 1982-2000 structural bull.


Generation X: Born during 1965-1979


There are around 82 million in the US. Known as the Bust Generation because their birth rate was much less than the preceding Baby Boomers. They grew up with one of the highest levels of education. Experienced Oil Embargo, soaring inflation, fall of the Berlin Wall, first Gulf War, and NAFTA. At 35 years of age suffered through the volatile structural trading range environment of 2000-2013. NAFTA led to the loss of millions of American jobs.


Millennials (Gen Y): Born during 1980-1994


With a total population of 95 million, this generation is tech-savvy. Gen Y grew up with computers, the internet, and social media. They endured the Great Recession and suffered the 9/11 terrorist attack. The oldest of Millennials turn 35 years old in 2015. Because of their size, they will begin to exert an influence on the financial markets. By 2029 the youngest of Gen Y will be 35-years or the start of their wealth accumulation phase.


IGen (Gen Z): Born during 1995-2009


One of the most tolerant of all generations. More accepting and open-minded in terms of different cultures, sexual orientations, and races. Grew-up highly supervised and more protected than prior generations. Avid users of smartphones, social media, and gaming. Gen Z is generally less optimistic and possibly less naïve than the previous generation (Millennials). As a result, they are more cautious about life and less willing to take risks. Gen Z maybe, if not more influential, as the Millennials when they come of age.


Generation Alpha: Born during 2010-2024

Will not only be a heavy user of Technology but will be completely immersed in Technology. They will have increased digital literacy and the gamification of learning. The use of technology will lead to shorter attention spans and less social interaction with peers. Higher than any other generation living without both of their biological parents. Will have a higher share of children with foreign-born parents and the children who are also foreign-born themselves. They will move frequently, change careers more often, and likely reside in urban areas.


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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