A whole bunch of money is poised to change hands in the market.
Sure, there is always plenty of churn and volume, even with historically low volatility, but this taps into a deeper trend.
It is more than just a cyclical or generational event. Quite frankly there has been nothing quite like it in the history of stock markets.
The fact that it is starting now couldn’t be more advantageous to us. We’re reaching the end of what the recovery can do for us.
Yet there definitely is money to be made. There may not be a rising tide to lift all ships anymore, but there is plenty of money flowing between sectors.
One sector in particular is hardly being noticed, yet is guaranteed to pull in enough to double, and perhaps triple, its size.
Inflows and Outflows
The rationale for looking to sector inflows couldn’t be stronger because of the outflows we’re seeing in the broader market.
I’m pretty sure the reality has set in for everyone. The view from the peak of all-time highs in the market is pretty underwhelming.
The central bank playbook is old and ineffective. All the tools are used and worn, and economists are so far beyond the pale that they can’t seem to find a way back.
We’re five straight quarters into a revenue and sales slump, and forecasts are being slashed again.
We’re not going to see economic growth return to the historical average for years, and the chances of broad stock market gains like we’ve seen in recent years don’t seem strong either.
Companies are sitting on a ton of cash on average, but almost all of it is held by a small handful of the biggest companies. A vast majority are seeing their cash reserves shrink at alarming rates.
Then there are the undercurrents that are eroding the base.
There are now about half as many publicly traded companies as there were 20 years ago. There are three factors responsible for this shrinking market: mergers and acquisitions, private (including venture) capital preventing IPOs, and — most recently — a surge in buybacks.
In the absence of broad economic and market growth and prevalence of cheap debt, Wall Street has become a giant wealth extraction machine.
Companies are pulling forward future revenue through debt to reward the shareholders who exist today.
Unwinding Accounts
Another source of outflows makes perfectly logical sense. The baby boomer generation is retiring and gradually drawing down retirement accounts.
Then there are the social security benefits and pensions. Tag on the fact that 70% of the disposable income in this country is in their hands too.
Add it all up and the baby boomer and older portion of the population drives 46% of annual economic activity in the U.S. That adds up to $7.1 trillion.
With the overall recovery of the housing market, boomers are no longer tethered to their “empty nests.” Real estate shifts are picking up steam and a specific sector of the real estate market is pulling in expanding profits from it.
The accumulated wealth and the seismic shift in demographics and housing is already having a profound effect in financial markets.
Stable, high-dividend-paying companies are outperforming the broader market because of it.
From 2000 to 2015 the S&P 500 returned 4.24%, the DOW returned 4.74%, and the NASDAQ returned 5.28%. This investment class blew these indices away with returns of 19.35%.
Jimmy Mengel has initiated coverage of this sector in anticipation of what is to come. Check out his research here.
