Retirees own more of the U.S. stock market than ever, threatening to exacerbate next selloff

By Joseph Adinolfi

One of the biggest threats looming over the U.S. stock market might be your grandma.

As the S&P 500 index powered to a fourth straight record close on Wednesday, one longtime market economist has highlighted what he described as a "a sinister downside risk...lurking in the shadows."

In a note to clients shared with MarketWatch on Wednesday, former Merrill Lynch economist David Rosenberg, who now runs his own firm, Rosenberg Research, warned that the share of U.S. stocks owned by people at or near retirement age has surged to a record 80%. This could create problems during the next selloff, as older Americans could trample over the market in their rush to the exits.

"If a downturn does materialize, demographically induced selling is a force that could exacerbate the spiral powerfully, with the effects ricocheting into consumer spending," Rosenberg said.

Despite all the hoopla about the meme-stock craze and young Americans trading their own accounts on Robinhood, Rosenberg pointed out that stocks remain largely the domain of retirees.

A full 80% of the market is presently owned by people above the age of 55, Rosenberg said. That is up from 75% on the eve of the COVID-19 pandemic, 65% just before the 2008 financial crisis, and an average below 60% in the 1990s and 2000s. Meanwhile, the share of the market held by people over 70 years old is up to 30%.

According to Rosenberg, heavy ownership of stocks by retirees could threaten U.S. markets and the economy. First, it could exacerbate any downturn. If stocks start to drop, many retirement-age investors could be forced to quickly rebalance their portfolios in favor of fixed income and cash.

Ultimately, these losses could spill over to impact consumer spending by making these same retirees less willing to spend. This could impact everything from elective medical care to leisure, travel and hospitality.

U.S. stocks looked set to open mostly higher on Thursday, with index futures on the S&P 500 (ES00) set to open marginally higher, while futures on the tech-heavy Nasdaq-100 (NQ00) were set to rise 0.2% at the open.

Futures tied to the Dow Jones Industrial Average (YM00), meanwhile, pointed to a marginally lower open.

-Joseph Adinolfi

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01-25-24 0836ET

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