Millennials and the Markets

According to Blackrock, apparently millennials are excited to be participating in the equity markets through exposure to ETFs. 

Although the story is painted as "reluctant millennials" finally becoming more comfortable with taking risk, I would say it lines up with millennials getting to the point where they have real money to invest.  Also, we're talking about people that are very cost sensitive and mistrustful of Wall Street, both of which would point them to ETFs as a good alternative to other investment options.

I was very interested to find that when I googled CNBC and millennials, I came up with these three headlines.  Note the dates for each.

 Source: Google

Source: Google

That's right.  As of May 2017, millennials are back into stocks.  Then in October 2017, they are afraid to invest.  Finally in January 2018, they are once again excited to be in stocks.  

This tells me two things.  First, we're not 100% certain what millennials are doing as a cohort, and it may very much depend on how they're asked.  Each of the stories above is based on a different survey of millennial investors.  The way the surveys were designed, as well as who exactly they asked, could have dramatically affected the results.

Also, this is a great illustration of the narrative bias, where we love to create stories to explain why we observe a certain phenomenon.  

Market movements always need a reason.  And when the market continues in an uptrend much longer than we would normally expect, we feel the need to determine who and what is causing the additional buying pressure.

In reality, the only thing we really need to observe is price.  Price tells us when there are more buyers than sellers, or vice versa.  Price tells us when the market is getting stronger, and price will certainly tell us when the market is starting to go down.

SPX outside days.png

This week, the S&P 500 had an outside day on Wednesday followed by another down close on Thursday.  This suggests short-term weakness in the markets.  But until we see a lower high and a lower low, the trend is overwhelmingly positive.

Are millennials providing the buying pressure that could push the market higher?  When you're focused on price, the identity of the buyers is largely inconsequential.

RR#6,
Dave

Disclaimer: This blog is for educational purposes only, and should not be construed as financial advice.  Please see the Disclaimer page for full details.