The Bull Market is Set to Run for Years

Bull Market

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

college graduate

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

old parents money

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

GlobalizationWhat 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.

 

What are your long-term thoughts on the stock market and global economy?  Are we going to stay flat, continue to grow, or fall backwards?

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  • http://www.frugalrules.com John S @ Frugal Rules

    Good post and great sentiments! I think we’re going to have some modest growth, but nothing huge for some time. I think there’s still a lot of fear out there, some unfounded and some not that’s still at play. I think there are also numerous moving parts that need to start working more effectively like the government (I know it’s a hopeful idea) and firms using some of the cash they’re sitting on. Regardless, I am still going to be in the market and stick to my investment plan.

    • http://thecollegeinvestor.com Robert

      It could definitely be a turbulent few years, especially with a dysfunctional government, but I think the broader trend is going to be bullish, especially over the longer run.

  • http://www.thefreefinancialadvisor.com/average-joes-money-blog/ AverageJoe

    While I think it may be slow going for the next year or two, demographic experts speak to the same expansion that you do: the “great recession” was halftime at the Super Bowl.

  • http://www.brickbybrickinvesting.com Brick By Brick Investing | Marvin

    There will be a great bull market but for a different I believe. Ben Bernanke has printed an insurmountable amount of money and it will eventually find its way into the stock market. In my opinion there is the potential for another market crash similar to 2008-2009 in 2014 if interest rates spike significantly.

  • http://www.passive-income-pursuit.com JC @ Passive-Income-Pursuit

    In the little bit of time that I’ve been investing I’ve also noticed that the world is always ending, taking the markets with it while at the same time the next big thing is coming along to take the markets to the moon. Meanwhile the markets just keep plodding along. Granted it’s been a rough decade for buy and hold but it’s been nowhere near as bad as it’s been made out to be if you were invested in solid companies.

    I hadn’t realized that the Millenial Generation was actually bigger than the Baby Boomers. Seems like every article about the impending doom of the markets leaves out that important tidbit. I agree with you on the markets continuing higher, although it won’t be a smooth ride.

    Good stuff and happy investing in 2013!

  • http://reachfinancialindependence.com Pauline

    I am bullish long term but not sure things are going to pick up just now. I believe the next 2-3 years will be uneventful and that in 2 years time you will probably be able to pick up investments at about the same price as today.

  • Andrew @ Listen Money Matters

    You have a great positive outlook, I definitely share your sentiment. I also think that a major differentiator is that our generation grew up with technology and as a result we are more productive with it. As we start getting into positions in companies that can really make an impact, that’s when I think we will really see a boom. Not all of us were terribly affected by the recession so some of us may get into positions capable of great impact very soon!

  • http://cashflowmantra.com JT

    I didn’t realize that the Millennials were larger than the Boomers. That should bode well for me as a part of Generation X. Asset valuations should have a floor as you have mentioned. Now is the time to be acquiring assets to sell them later when your generation reaches peak earning years.

  • http://www.optionstradingiq.com Gavin @ Options Trading IQ

    You’ve been spot on so far this year Robert, well done. I feel there is a small bear market coming, but you’re right, we could be entering a generational bull market in the longer term. If you look at the S&P 500 it’s more or less at the same level as it was in the year 2000. That’s 13 years of basically 0% returns from an asset class that should average 8-9% per annum.

    People talk about Japan’s Lost Decade, but what about the US?

    If you look back at the S&P 500 from 1966 to 1982 there was also a 0% return. This is what followed:

    From 1982 to 1987 the 500 moved from around 800 to 2600 (and then the crash)
    After the 1987 crash stocks went from 2000 in 1987 to nearly 12000 in 1999.

    Something to think about…