Baby boomers are flush, with excessive rates of interest fattening their financial savings accounts. Young Americans, they’re combating money owed, sky-high rents and mortgage charges which can be placing residence possession additional out of attain.
That’s driving a brand new commerce suggestion from Bank of America Corp., one aimed toward exploiting the widening generational wealth hole: Go lengthy on old-people shares. Avoid these whose fortunes trip on cash-strapped millennials.
That means American Express Co. and cruise-ship traces are in. Out is Revolve Group Inc., a self-styled “next-generation fashion retailer” for the twenty-somethings.
“Millennials are really feeling the impact of the hiking cycle. Boomers, not so much,” BofA quantitative strategist Ohsung Kwon, himself a millennial, mentioned in an interview. “We’re starting to see a big diversion between the two.”
That fault line is rising beneath an financial system that’s on the floor remained surprisingly robust, largely because of a gradual consumer-spending splurge because the pandemic lockdowns ended.
True, the Federal Reserve’s aggressive interest-rate hikes have slowed pockets of the financial system. But they’ve additionally delivered what’s successfully been a gradual provide of stimulus checks to older Americans, who went from receiving just about nothing on their financial savings to pocketing the best curiosity payouts in twenty years.
Winners and losers
That’s prone to make winners out of sectors like well being care and leisure, the place older individuals spend some huge cash, in accordance with BofA. Home-improvement shares is also rewarded, as boomers live longer than earlier generations and develop reluctant to promote properties which can be locked in low mortgage charges.
On the flip facet, clothes retailers, a class skewed closely towards the younger, are dealing with robust headwinds.
The pattern seems prone to proceed with the Fed planning to carry rates of interest excessive for some time and the surging federal deficit maintaining upward stress on bond yields. That, in flip, is driving up what the federal government pays in curiosity on Treasuries — which matches proper again into the pockets of traders.
As a outcome, child boomers and people proper earlier than them are accounting for the lion’s share of US consumption immediately, BofA knowledge confirmed. Meanwhile, members of the cohort born between the early Eighties and late Nineties have pulled again on spending and seen delinquencies rise on credit score and debit playing cards.
“Pre-pandemic, the empirical evidence was there supporting that boomers are doing better than millennials in regards to investments, retirement accounts and home ownership,” mentioned Robert Schein, chief funding officer at Blanke Schein Wealth Management. “And post pandemic, that divide, because of higher inflation and elevated interest rates, has gotten dramatically worse. The divide is just gigantic.”
Boomers are cruising
According to BofA, cruise traces have the heaviest publicity to boomers, who characterize roughly 40% of their journey goers. Travel was highest on the listing of priorities for discretionary spending amongst adults over the age of fifty, BofA mentioned, citing AARP knowledge. And that trade has benefited effectively from the post-pandemic journey growth: The S&P 500 motels, resorts and cruise traces index is up almost 28% this yr, even after the drop over the previous few months.
The BofA report gives few particular inventory picks. But American Express is singled out as a beneficiary of its “boomer’s boom” thesis, since older adults are extra prevalent customers of its bank cards.
On the millennial facet, BofA cited a deceleration in spending on clothes that’s already underway, which they partly attribute to a discrepancy in wealth and consumption between the 2 age teams. The analysts see particular danger to e-commerce retailer Revolve, which expenses increased costs than its friends and is favored by Gen Z and millennial consumers.
Yet some traders are doubtful of the long-term endurance of the commerce, given boomers’ quickly advancing ages. Moreover, all that wealth will finally be inherited — and far of it spent — by millennials.
“To focus investments for boomer preferences and not millennial preferences, I think you’re skating to where the puck is and not where it’s going,” mentioned Douglas Boneparth, president at Bone Fide Wealth. “If there is significant wealth being transferred to millennials or younger, wouldn’t you want to understand the investment preferences and consumer habits of that generation as far as investing in the long term?”
For now, BofA argued that boomer spending and asset possession is sufficient to maintain consumption going. The financial institution has held a optimistic outlook on US client spending and shares extra broadly, with its economists scrapping a earlier name that the US was heading towards a recession.
“Everyone talks about the access savings that are dwindling, but they are double pre-Covid levels, and that’s only part of the story,” BofA’s Kwon mentioned. “You gotta look at the whole picture, the whole balance sheet — and the balance sheet for the consumer still looks phenomenal.”
___
©2023 Bloomberg L.P. Visit bloomberg.com. Distributed by Tribune Content Agency, LLC.
Source: www.bostonherald.com”