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The real deal on weak market volume

Marketplace Staff Nov 25, 2009

The real deal on weak market volume

Marketplace Staff Nov 25, 2009


Tess Vigeland: Wall Street investors can give thanks for a relatively bountiful year, at least when you count from March onward. But it’s worth noting the stock market has been serving up very thin slices lately. On average, $5.7 billion shares a day changed hands on the New York Stock Exchange this year. But that’s dropped way off in recent weeks. The weak volume has some analysts doubting how solid the market run-up really is. Perhaps “once-burned, twice-shy” investors are staying away.

But our senior business correspondent Bob Moon has been looking into another theory: Could it be baby boomers have started cashing out for good?

Hi Bob.

Moon: Hey Tess.

Vigeland: Do we really need to be worrying at this point about this exodus of retiring baby boomers sinking the stock market?

Moon: Well, let me say right up front, I’ve spoken to a half dozen leading economists and veteran market watchers, and they’re wishful thinkers. They don’t think this is going to be a serious issue. But let me also say that they all concede, nobody knows for sure.

This idea jumped off the page at me, a few months back Tess, when I was reading an Associated Press article about profound changes that have been transforming the stock market. Let me read you this and see if it strikes you, the way it jolted me:

“The first baby boomers turn 65 in just two years. When that happens, the 78-million-strong group will begin the long process of removing its wealth from the market.”

And buried in this article was this question of what’s going to happen when the biggest, richest and most invested generation starts to cash out?

Vigeland: But this can’t possibly be a surprise. They’ve been aging for their entire lives, right?

Moon: Well, I got in touch with some leading economists and some market watchers about this. And they all basically told me not to worry and the stock market isn’t about to dry up. And some pointed out that you’ve got baby boomers now who are going to have to try to make up what they’ve lost in the financial crisis and in the recession.

Vigeland: So they’re not going anywhere.

Moon: That’s right. And there’s only one game in town right now that you can sock away the kind of money that you need right now.

Ted Weisberg: Certainly the stock market has to be, in one way or another, the recipient of investors’ funds. They want return on their investments. You can’t go to the grocery store with zero return on treasuries.

Moon: That was Wall Street broker Ted Weisberg at Seaport Securities and he sounds relatively confident.

Vigeland: He does. So, do we still need to worry?

Moon: I wasn’t hearing much concern from other economists either. So I tucked this story away and then the other day, I see this story on the Reuters news wire.

Vigeland: Uh oh.

Moon: And lo and behold, it’s quoting an asset manager at the big private equity investment firm BlackRock. And he says, “U.S. financial advisers are due for upheaval as baby boomers, controlling $10 trillion in assets, reach retirement age and shift away from stocks to more conservative investments.” And it turns out, Tess, if you press people like S&P’s chief economist David Wyss on this, it’s something that can’t help but have an effect.

David Wyss: No, I think it’s a concern and I do think it’s going to restrict returns in the stock market for a while. That doesn’t mean that stock market has to go down forever. But it’s a headwind that’s going to make harder to get stock market gains than it was during the 70s and 80s.

Moon: Now he guesses that that means we won’t see the market hitting the highs it did for years and years, maybe five, six years.

Vigeland: But you know, I feel like I heard that back in March, you know, at Dow 6,500, that it’s going to take years and years for us to get any traction and hear we are over 10,000.

Moon: Well, come back to that question of volume, Tess. My stock broker friend Ted Weisberg says there’s been very little public participation in this market rise, so if a big institutional investor pulls away from the stock, it doesn’t take much for that stock to take a dive.

Let me paint you a little word picture here, OK? Imagine trying to refill the bathtub, at the same time, the drain is open. And that’s what we’ve got here. Big institutional investors pouring their money in, but baby boomers draining it off. And that could mean less money for companies across the country.

Vigeland: Our senior business correspondent, Bob Moon, joining us to talk about the stock market. Bob, thanks so much and happy Thanksgiving.

Moon: Same to you Tess. Thanks.

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