Some market analysts have long warned that as the baby boom generation nears retirement, they'll shift from being buyers of stock to sellers (on average), and that this may put downward pressure on stock prices. Some researchers believe this phenomenon is already affecting share prices.
Zheng Liu and Mark Spiegel, researchers at the Federal Reserve Bank of San Francisco, recently published an analysis supporting this view.
"The demographic changes related to the retirement of the baby boom generation are well known," they write. "This suggests that market participants may anticipate that equities will perform poorly in the future, an expectation that can potentially depress current stock prices. In that sense, these demographic shifts may present headwinds today for the stock market’s recovery from the financial crisis."
The demographic shift may have a depressing effect on the "price-earnings ratio" for stocks – meaning that share prices will be lower relative to the earnings power of publicly traded companies.
Not everyone agrees this is a big deal, or that it's already visible in stock prices. But the researchers at the San Francisco Fed argue it could have a negative effect on stock prices over the next two decades.
Yikes, maybe investors just want to stuff their money in certificates of deposit. But wait ...
