Are Recent Market Highs Merely Rhymes, or Something More?

My family and I went out to dinner this past summer on a Sunday night during my vacation – five adults at a ‘farm-to-table’ restaurant in Maine. As you might expect, we received a somewhat healthy bill. Three nights later, the same group of five went out to dinner at a nouveaux Italian restaurant. When I looked at the bill, something struck me as odd. Later, when I set the receipts from those two very different restaurants side by side, I had to rub my eyes – they wereexactly the same! The same five people on two different nights at two different restaurants with two different menus managed to produce the same exact amount on the bills! What were the chances of that – and what did it mean?

As someone smarter than me once observed, history never repeats itself, but it does rhyme. Oftentimes those rhymes, like my family’s dinner bills, are simply ‘head fakes’ – curious coincidences with no residual meaning. Other times, however, they do carry meaningful implications. Consider, for example, what’s going on in the markets right now.

Just last week the S&P 500 Index touched another new high, closing at 1598 on 4/30/13. Yet many argue that this is a ‘head fake’ and that the economy is not rebounding fast enough to support such ascension in the popular indices. Coincidentally, the lead article in a recent issue of Barron’s (4/29/13) is titled “Here Come the Millennials,” which refers to the bulge in population represented by 18 to 37 year olds. This group of younger adults, mostly the offspring of the Baby Boomers, is often referred to as the “echo boom”.

The reason I juxtapose these two concepts is this: Back in the early 80s, when the markets were fighting their way out of the grinding economic malaise of the 70s, many pundits were also discounting the new highs of the time as ‘head fakes’. At the time, the Baby Boomers ranged in age from 18-37. This large population grew up with an appetite for consumption (from toys, to schooling, to autos, to homes to financial instruments), and an ability to impact demand – and thus prices – of everything in their wake.

Some say Boomers are largely the impetus for the market’s movement (as represented by the Dow Jones Industrial Average) from just below 800 in 1981 to over 14000 some 20+ years later. There is still active debate, since they have reached a median age of 60, about the impact of Boomers on health care, retirement offerings and income distribution.

This “Rhyme” Has Some Reason

My point is that there is currently a “bar-bell” in the population of the United States. Just as the Boomers at one point were poised to start spending on technology, housing, autos and banking, the echo-boom “Millennials” are now ready to create their own wake of spending and development. The Boomers, meanwhile, are still active at the later stages of their own lives.

When thinking about recent market activity, I believe it’s best not to get caught up in the wave of negative messages or dismiss these trends as trivial. Better to take this rhyme in context, appreciate the broader landscape and consider the opportunities that may lie ahead on the longer runway that most of us face. As I’ve stated before, a multi-asset approach, which includes vehicles for growth and vehicles that generate, grow and sustain income along a spectrum risk may be the best way to prepare for the future. Better to put money in buckets … of near-term needs, medium-term wants and long-term desires … and then invest accordingly.

© Pion eer Investments

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