Excerpt from “Why baby boomers may hold the cards to any Trump plan to rescue stocks from the selloff” by Joy Wiltermuth for Marketwatch
March 22, 2025
Boom, baby, bust?
With half of all spending in the U.S. now driven by top-earning households, according to Moody’s Analytics, the big worry for the economy this time around would be a sustained drop in the stock market that slashes wealthy people’s consumption habits.
“It’s pretty shocking stuff,” said Doug Ramsey, chief investment officer at the Leuthold Group in Minneapolis. “That’s a secular move that had been happening prior to COVID and this market surge in the last two and a half years, but really turbocharged.”
He added: “There’s no doubt that the stock-market increases have contributed to that.” The S&P 500 has gained more than 20% in each of the past two years.
Higher asset prices can contribute to the “wealth effect,” the notion that people spend more when stocks or home values rise. Most homeowners locked in ultralow mortgage rates during the pandemic as home values skyrocketed, which provided families with a buffer and a pile of home equity to tap if needed as inflation surged.
The rate of homeownership among younger adults has edged up in recent years, but a far greater number of people 65 and older own their homes, according to quarterly census data. People age 55 and older also control about 80% of stocks and equity funds.
“The equity market is important because it has the wealth effect for baby boomers,” Tracy Chen, a portfolio manager with the global fixed-income team at Brandywine Global, said in an interview.
Although she thinks there isn’t a risk of an immediate recession, volatility isn’t likely over either, she said, given that Trump has circled April 2 as a deadline for potential “reciprocal tariffs.”
Trump on Friday signaled that he might be open to some “flexibility” on tariffs ahead of next month’s deadline. The S&P 500 narrowly avoided a fifth straight week of losses on Friday, gaining 0.5% for the week, according to Dow Jones Market Data.
Seeking reassurances
With equities largely avoiding major pullbacks in the past two years, investors have grown accustomed to the stock market adding to their wealth, not subtracting from it.
The pullback in 2025, however, has unnerved people, including older people who have been closely monitoring actions by Elon Musk’s so-called Department of Government Efficiency as it attempts to cut services and staff at federal agencies.
“I can’t say it’s a blip on the screen,” said Jim Keenan, founder of Keenan Private Wealth Management in New York, about his recent conversations with clients. “To me, politics is moving everything.”
Keenan said his clients are baby boomers who have been with him for decades. “Everybody’s nervous watching the news and getting more and more upset,” he said. “It’s like a deer in the headlights.”
Some clients, however, have been switching to asset-preservation mode from asset appreciation, he said, including looking to move into bonds and dividend stocks.
Others have been rethinking big expenses, he said, including whether to put off redoing a kitchen. “I don’t think on the ground people are stopping spending, but they are thinking of it.”
Read full article here: https://tinyurl.com/KeenanMarketWatch