Stock Market Bottoms End Of 2017

| About: SPDR S&P (SPY)
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Summary

Looking purely at demographics there appears to be important effects to stock performance.

We quantify the peaks and troughs in the birth cycle.

We'd expect a stock market low around the end of 2017.

(Picture of 1967's top album cover. We think 50 years later we'll be "getting better.")

We're following up on our "This Is Slowing The Economy." In that piece we showed how baby boomers aging are affecting the economy.

In this report we wanted to bottom line it to see how demographics specifically can drive stock prices.

Bottom Line It For Me, What's Demographics Mean For Stocks

We think the boomer and birth cycles are incredibly important to stocks (NYSEARCA:SPY).

First, we base our findings on tracking 50-year-olds. We think they are peak earners and strong spenders. Then we took the peaks and troughs of births and added 50 years to see what we get.

It just so happened that 50 years after peaks and troughs of births coincided with major peaks and troughs for the market.

You can see the above birth chart. The numbers on the chart itself are 50 years after those peaks and troughs for births.

Here's the Dow Jones Industrial performance in those timeframes.

Let's look at trough to peak, a bull market move. These are the periods when 50-year-olds bottomed and started to rise as a percent of the population.

Trough Peak
Trough Peak Dec 31 Jan 01 Total Ea Yr
1983 1993 1258 3794 9 201.6% 22.4%
1995 1997 5117 7908 2 54.5% 27.3%
2000 2007 10786 12474 6 15.6% 2.6%
Average 17.4%

The average annual period was up 17%. When 50-year-olds were increasing in the population they helped drive the stock market.

Here's from Peak to Trough.

Peak Trough
Peak Trough Dec 31 Jan 01 Yrs Total Ea Yr
1971 1983 890.2 1027 12 15.4% 1.3%
1993 1995 3794 3838 3 1.2% 0.4%
1997 1998 6442 7965 2 23.6% 11.8%
Average 4.5%

The market was up but underperformed the periods that saw 50-year-olds declining as a percent.

Where are we this cycle?

2011 Today 12217 17148 5 40.4% 8.1%
Real 2017 ??

So far this cycle we are outperforming past cycles. We have another year and a half.

Market bottoms end of 2017

We played with the numbers multiple ways and the widest variance was seen when we entered at the end of the start year and exited at the beginning of the end year.

Based on our first chart people turning 50 will hit a low in 2018. At the start of that year, according to our findings would be the best performing low for the stock market. According to this, it would call for a low at the end of 2017.

We didn't want to say the market will be down based on our findings today. The market performed positively even when the births were in a down cycle.

We are way passed the last peak, market overvalued?

The market is 40% higher than the last birth peak. A case can be made for the market being overvalued. We do think excess Fed liquidity may have "propped" up markets passed their underlying potential (see "Fed Mulls Letting Market Float" for more).

Why 50?

We think people turning 50 are rising to their lifetime peak. They are wiser, active, and achieving the most in business. They didn't stop spending in fact they may help their children spend. They also didn't start getting too conservative. We think conservatism ramps up more seriously when the income stops flowing, around 60.

Conclusion

We think the make-up of the population has important consequences to the economy. The changes of who's driving buying decisions matters. We think the 50-year-old subset is the right balance of earning and not yet too conservative.

We think year over year changes matter to the economy so the 50 year old change in births matter year over year.

We think if it were not for the massive liquidity from the Fed, this peak to trough would be more meaningful based on the drop of this core economic driver, the 50-year-old.

Good luck and please be in touch. All of your comments teach US a ton.

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