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Party Like It's 1999

            For those in my age group, you remember don’t you?  Prince?  party like crazy because it was all going to end once the clock hit Y2K (Year 2000).  Today, the S&P 500 is having its own party crossing into the 2000s.  Is this the beginning of the end or has the correction run its course?

 

Stealthy Correction Over?

 

            The broad stock market indices of the world peaked last on July 3rd and headed lower for about a month declining on average about 4-5% although the damage outside of these large cap benchmarks was far worse.  In fact since the peak on July 3rd, the percentage of stock down over 20% is actually HIGHER than the reading on that date according to Lowry’s research this AM.  Small caps stocks lost an average of 10% and are far from exceeding their May and July Peaks.  And 52 week New Highs continue to show a pattern of lower peaks dating all the way back to May of 2013 (not a typo).  So now that large cap stocks represented by the S&P 500, have impressively crossed into all time new high territory again, we must also respect some increasingly obvious selectivity developing overall. 

 

          Even so, there is mounting evidence that our summer correction MAY be over.  Many indices like the S&P 500 are pushing out to new highs beyond the last peak on July 3rd.  In fact, 128 of 330 total indices (39%) in my database are now positive since then.  I suspect we’ll see that number expand.  Leading the charge are Technology, Financials, Transports and Healthcare making this a broad based run with our heavy weights doing the heavy lifting.  Commodities are still lagging, gold is breaking down, bonds are still in a steady uptrend and energy is still hanging near the bottom of the correction pattern.  All in, there are enough things to own that we can stay largely invested but I would offer one bit of caution.  The seasonality of buying now is not good from a historical perspective.  September has long been one of the worst months for stocks and prices are now overbought again after a near vertical move off the August lows.  For as much as it seems painful to be patient now as the market seems to be lifting off to new highs (S&P 2000), it might be just the thing to do.  Those who want out ahead of September now have their finger on the sell button so be very careful about chasing this any higher until we see what the next down cycle looks like.  If we just get some consolidation of recent gains at or near the highs, followed by another surge in buying, I would see that as a favorable opportunity to buy new positions with any cash.  If on the other hand, sellers come in heavy and prices head back to the lows in August, we would be grateful that we didn’t buy into the 1999 party.

 

“Millennial Gold Rush”

 

            The cover of the August Forbes magazine caught my eye in the airport.  It had this title and seemed to fit with my ongoing research into this group of new investors, so I bought the magazine.  It was the first thing in print I have purchased in probably 4-5 years and it cost $5.99!  Sadly, I found the article on my I pad about 4 minutes later.  Anyway, the main story was not about “rich and scared” Millennials (those born after 1980) as described on the cover, as much as a host of new robo-advisor web based investment websites.  I’m going to spend some time on the value proposition of these services (Betterment, Wealthfront, LearnVest, etc) in the upcoming Solution Series Webcast called “The Real Costs of Investing”.  However, more interesting to me was some of the data presented on trends in Millennial behavior.  I mentioned this first a few months ago in a brief discussion about their rejection of the American Dream (get a job, get married, have children, buy a house, die at your desk working to pay for it all).  I spent a lot of time with Millennials this summer and they do seem committed to their plan of impermanence.  According to Forbes, only 42% of Millennials between the ages of 25 – 32, are married compared to 68% of the baby boomer generation when they were in the same age bracket.  That number was 84% for the generation before.  Millennials in that age range also have the highest percentage of 4-yr degrees – 34% compared to 25% for Gen X and 24% for Baby Boomers.  Also, not surprisingly, homeownership for the Millennials is also one of the lowest in modern history – only 13%.  They don’t seem to want to play the game in general.  Work for money is something that might happen in between trips to foreign lands.  Home ownership is viewed as something that ties you down to a desk for life or even worse, a scam.  And Marriage?  Not high on the list as more than 40% come from broken families themselves with some darkness surrounding the concept of “home”.  Finally, as an investor group, I’m not seeing the rich part of “Rich and Scared” at least not yet or until they hit their inheritance wave.  Most commentary was talking about where to put their $2000 IRAs while still owing $50,$60 and $70k in student debt.  Not a very promising looking investor at this point with exceptions of course.

 

          As always, it’s common for every generation to look down at the next and question their work ethic but the Millennials on average seem genuinely not interested in developing careers as much as making a service wage or maybe staying in school.  Perhaps we’re seeing some of what the Fed is talking about with an underdeveloped job market, lacking in career type compensation or opportunities.  Or perhaps this is more of a cultural thing after smelling the rot of corporate greed for the last two decades.  Perhaps this is the birth of a more enlightened generation with more creative and less traditional aspirations.  The answer is probably all of the above.  Either way, if I had to guess, it seems likely that here in the US, we should expect somewhat of a time gap in wealth creation, real earned income and the development of a viable new investor class.  With the baby boomers retiring quickly, that newly available seat might get a bit cold before it’s filled.  Something to consider in the big scheme of things.

 

Those are my musings for the week – now all of you kids get back to School J

 

Cheers

 

Sam Jones