Is The Trump Rally Over?

Time For Pause

The global markets pulled back from all time highs this week even as the Dow Jones Industrial Average set a 30 year record. The blue chip index rose for a record 10 straight sessions, a feat not achieved since 1987, and set new all time and intraday closing highs above 20,800. In the years that followed the index doubled and tripled leading into the tech bubble of the 1990’s causing traders now to speculate if a similar event could be in the offing now. This week alone the index gained nearly 1% and has risen more than 15% since the election of Donald Trump.

The rally has been building for some time, driven by demographic shifts in the US and global work forces and supported by easy money central bank policies, corporate buy backs and dividends. The election of Trump did not cause the bull market but it did set the bulls free in anticipation of pro-growth policies. The US economy was already expecting growth in the range of 2% for 2017, anything that helps to spur economic activity will only help that. Tax reform and deregulation are only the tip of the ice berg. These policies are set to spur the flow of money through the economy generating cash flow that has not been seen since before the 2008 Global Financial Crisis and Great Recession.

While demographics has been a headwind for the economy for quite some time those winds are shifting. The Baby Boomers, as they entered retirement, caused the workforce to shrink over the past 10 years or so. Now the Boomers, generationally speaking, are mostly retired from full employment which not alleviates the headwind but provides a vacuum of higher paying, higher responsibility jobs that needs to be filled. Waiting patiently behind them is Generation X, a generation that is 1) about 1/3 smaller than the Baby Boomers and 2) is “fully engaged with the workforce”.

Not only is there a vacuum on the upper end of the workforce there is a growing tailwind at the lower end, the Millennials. In terms of engagement with the workforce the first of this generation is turning 32 this year and have reached an age where they can be expected to be “fully engaged”. They are also about a 1/3 bigger than Generation X reversing an age imbalance that has been persisting for decades. The reason for job stagnation and lack of upward mobility throughout the ’90’s and 2000’s is that the Boomers outnumbered Generation X. There were simply too many people that were older, with more experience, waiting in line for promotion while at the same time the number of younger, lesser experienced workers was dwindling. Too many managers and not enough employees.

So, back to the original point, are we looking at a prolonged period of bull market conditions and market rally? I say yes and this is why. For the past 10 to 15 years the market has been dominated by retirement selling as the Boomers reach age 60/65 and began trimming their portfolios. At that time there was not enough new workers entering the workforce and building their IRA’s and 401K’s so this selling led to the secular bear market of 2000 to 2012. Remember the 2008 peak and aftermath when all those Boomers began wondering if they were going to be able to retire, and having to stay at work a few extra years?

Now the Boomer led retirement driven selling is coming to a close while at the same time the Millennials are entering the workforce, getting jobs and starting 401K’s and IRA’s of their own. They are a new round of money entering a market that has been building a base for the past 10 years and creating a generational shift in market valuation. We may see the Dow Jones Industrial Average consolidate over the next few weeks as we wait on the next round of central bank meetings, economic data and details on Trumponomics but the trends are up, the bull market is here and the rally will continue.