The Federal Reserve Bank of San Francisco has published an economic report warning that the aging of the baby boom generation will likely create a slowdown in the stock market as boomers retire and shift from buying stocks to selling them.
In an economic letter dated Aug. 22, “Boomer Retirement: Headwinds for U.S. Equity Markets?” San Francisco Fed researchers Zheng Liu and Mark Spiegel write that a strong relationship exists between the age distribution of the U.S. population and stock market performance. Both historical data and statistical models suggest boomers’ shift to selling their stock holdings could be a factor holding down equity valuations over the next two decades, the researchers warn.
“The baby boom generation born between 1946 and 1964 has had a large impact on the U.S. economy and will continue to do so as baby boomers gradually phase from work into retirement over the next two decades,” Liu and Spiegel write. “To finance retirement, they are likely to sell off acquired assets, especially risky equities. A looming concern is that this massive sell-off might depress equity values.”
The researchers argue that the sustained asset market booms in the 1980s and 1990s can be attributed to the fact that baby boomers were entering middle age, the prime period for accumulating financial assets. Now, they say, boomers are entering the de-accumulation period.
But, they acknowledge, some older investors will remain in the stock market.
“Retired individuals may continue to hold equities to leave to their heirs and as a source of wealth to finance consumption in case they live longer than expected,” Liu and Spiegel write.