Thomas J. Lee is a well-followed, well-respected strategist who’s been top-ranked by Institutional Investor every year since 1998.
He was Morgan Stanley’s Chief Equity Strategist from 2007 to 2014 and is the Managing Partner, Head of Research and a co-founder at Fundstrat Global Advisors.
In short, he’s one of those people worth paying attention to when he speaks, which for Lee is regularly on CNBC and elsewhere.
His latest take on the bull market for stocks is from a demographic perspective. Lee believes millennials could help keep this bull running until 2038. That’s right.
Stocks have demonstrated “extreme resilience” in 2020, according to Lee, who thinks they can “still go up a lot.”
In a recent note to clients, Lee broke down four factors factors driving this belief:
(1) Federal support and fiscal policy.
Lee said the Federal Reserve and fiscal policy are providing “massive support” to markets, and thinks Wednesday’s decision to keep rates lower for longer underscores this.
He reiterated the age-old advice “don’t fight the Fed,” but added that economic policy can’t be the sole factor driving stocks higher.
(2) Stocks are more valuable within the current capital structure.
US corporates survived “the most extreme stress test of any of our lifetimes,” during the global pandemic, and largely prospered.
Within the corporate capital structure, stocks have proved to be “more valuable in a time of stress than previously exhibited.”
(3) A global labor shortage.
Lee said the world’s current “structural labor shortage” will be a key driver behind US stocks’ momentum.
He highlighted a chart which shows that since 1930, periods of US labor shortages have consistently led to “parabolic gains” in technology stocks.
The US has been structurally short labour since 2015, and Lee said the world is becoming more reliant on technology to offset this labor supply contraction.
He said technology is likely to become 50% of the S&P 500.
(4) Millennials are driving the US economy — but haven’t “peaked” just yet.
Millennials are the single largest ever generation in the US, but aren’t expected to peak in total size until 2038.
Since 1900, every generational “peak” coincided with a “major market top” of the Dow Jones Industrial Average.
“Hence, 2020 is probably the start of a new bull market that might last 20 years,” Lee concluded.