The challenge for investors isn’t always what the stock market will do next week, next month, or even next year, but what the consequences will be over the next two to three years. According to Morgan Stanley Wealth Management, increased consumer spending, a rising digital economy, and an emerging class of millennial investors should propel equities in the years ahead.
“A continuance of robust consumer spending is perhaps the most direct driver of both economic growth and stock values.” The vaccine rollout and subsequent reopening of the US economy may spur further expenditure on a variety of services, particularly among higher-end consumers. Today’s situation is in stark contrast to 2008, when the housing market was at the heart of the financial catastrophe. Most people are not coping with excessive debt or defaults this time around, and banks remain financially sound and eager to lend to both businesses and individuals. This could aid in the acceleration of economic growth.”
Katy Huberty, an equities analyst who focuses on information-technology hardware, sees early signs of business-model alterations that foreshadow long-term shifts in consumer preferences as well as quickening trends in e-commerce and e-services. She also expects cloud computing, collaborative tools, automation, and data analytics becoming more widely adopted. With the pandemic forcing office workers to work from home, corporate spending on tech devices increased by 30% last year, and we expect stronger spending on digital services as the economy recovers and corporations adjust to a ‘new normal.'”
“At the moment, only 6.5 percent of Millennials’ assets are invested in equities, which is equal to the 6.0 percent allocation Boomers had at 40.” Following that, the Boomers’ allocation to equities increased to nearly 25%, signaling that more stock-market inflows may be on the way. While the demographic tailwind is positive for stocks, it’s worth noting that values are higher now, with the S&P 500 Index’s projected price-to-earnings ratio of 21 compared to 12 in 1990. Even if demographic-driven equity-market inflows support an upward trend in equities, we are unlikely to see a repeat of the 1990s’ magnitude of gains.”/nRead More