The Bull Market is Set to Run for Years

January 9, 2013 By Robert Farrington

It’s a Bull Market

If you’ve been paying attention to any financial news this last week, you know that stocks have been nearing their five-year highs .  Whenever the stock market reaches a new high, it always creates two different arguments:

1. Bears: Stocks have reached their peaks – sell, sell, sell!


2. Bulls: Stocks have room to grow – buy, buy, buy!

But, after years of reading the financial news, you know what is funny?  Those two arguments are said  no matter where the stock market is .  If the market is crashing, the bears think it will go lower, while the bulls are planning the rebound.

The bottom line is that the stock market is as much a game of perception as it is reality.  It doesn’t matter what a company does, but what investors  think a company will do.  With that being said, I want to lay out my argument for why I believe that the bull market we’ve seen is set to run for years to come – maybe even a decade or longer.  I’m not saying there won’t be corrections or Black Swan events, but over the next few years, there will be a solid bull market.

It’s My Generation’s Turn – The College Investors

They’re Coming

When I look at the next few years, I’m excited.  I’m excited because it is time for The College Investors and other millennials to start getting into the “real world”.  What am I talking about – the real world?

Well, the millennial, according to Wikipedia, is anyone born between 1981 and 2000.  So, that makes them anywhere from 13 to 32.  What has impacted the millennials more than any other generation?   The Great Recession .  So, now that we’re starting to recover from the financial collapse of 2007, there are a lot of factors lining up that are setting up a bull market led by my generation.

Employment

The first thing that inspires me to call a bull market is improving employment for millennials.  But it’s not just that college graduates are going to have jobs – it’s everything that goes along with having a job.  By having a good job, college graduates can now start to spend money.  And they’re going to buy things: cars, houses, furniture, stuff, stuff, and more stuff.  Since we’re a consumer spending driven economy, this bodes really well for growth.

The trouble is that the poor employment situation for the last several years has delayed this.  And if we look back into history when the Baby Boomers were getting into the workplace, buying homes, and more – you can see that the bull market rallied a solid 19% average return from 1981 to 1999.  Not too shabby!  Plus, with prices down in the housing market, and low interest rates, now is the time when we will start to see a generational flip in the housing market, and the consumer spending market as a whole

A Changed Financial System

The other part of the equation that bodes well for a bull market is the changed financial system that college graduates and other millennials are walking into.  This is a financial system that encourages individual investment and savings versus corporate investments and government hand-outs.  This will be the first generation that has less reliance on pensions and company sponsored plans, and more self-reliance.

This is going to be the generation of the 401ks, Health Savings Accounts (HSAs), Individual Retirement Accounts ( IRAs ), and more.  While previous generations have had some exposure to these products, it’s the millennial generation that is going to be using them to their full extent.  And this means that more and more money is going to be invested in the stock market and other financial products.

Baby Boomers Aren’t Going to Crash the Stock Market

They’re Leaving

Another funny fear has been that, as the Baby Boomers retire, they’re going to be needing more and more of their investments to live off of, and as a result, they will sell their stocks and crash the market (or at least send it into a long, slow decline).  While it is a given that Baby Boomers are going to need to access their money, their small investment moves are  not going to tank the stock market for several reasons.

Millennials are a Bigger Generation

First, it should be noted that my generation, the millennials, is actually a bigger generation than the Baby Boomers – about 12% bigger.  This has contributed to the employment problem in a way, because not enough jobs were being created to support both generations.  However, as the Baby Boomers retire, there will still be a lot of workers that are going to be moving into the economy and contributing – both through economic output and by spending.

Boomers Don’t Sell Everything at Once

Second, if you’re going to retire, you’re not going to sell all of your assets and keep it in cash for years and years.  No, most Baby Boomers are going to slowly sell their equities, and move into other financial products, which will still drive the economy.  Only small amounts of cash (relatively) will be drawn down upon every month as Baby Boomers retire.

The Top 1% Still Own Most of It

Finally, the Top 1% still owns most of the wealth anyway (60%+), and these individuals definitely won’t be selling all of their assets any time soon.  Instead, they will most likely continue to live off the earnings from their massive wealth and pass the bulk of it down to their heirs.

The World is in Play

What makes this bull market truly different than past ones is that it will be driven by globalization, not just by the United States.  More and more countries are developing rapidly, and are growing a middle and solid upper class that will seek to invest – both in the United States, Europe , and abroad.  This will see an influx of money, which will boost both the stock market and the potential revenue of many global conglomerates.

As more and more people get extra money world wide, they will spend it on products made by companies here in the United States, or they will start to invest it in their own countries.  Either way, it bodes well for equities over the coming years.

This is a trend that isn’t likely to stop any time soon.  While emerging markets are much riskier and more volatile, they will continue in an overall upward direction for years to come.  Plus, they will inevitably rub off on the US Economy as a whole as well.