Selling by baby boomers could depress stocks for years

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As if investors don’t have enough to worry about these days, a new study says that selling by baby boomers in coming years could be a persistent wet blanket on the stock market.

The report by the Federal Reserve Bank of San Francisco predicts that stock prices could fall 13% over the next decade solely because of baby boomers dumping stocks to branch into more conservative investments as they retire.

It could take an additional six years, until 2027, for share prices to return to the level they reached last year, according to the analysis by researchers Zheng Liu and Mark M. Spiegel.

In the typically understated language of a government report, the researchers describe this scenario as “quite bearish.”

The report’s basic premise is that stock prices “have been closely related to demographic trends in the past half century’ -- in other words, that baby boomers pushed up stock prices in earlier years as they hit their prime earning and saving years.

This isn’t a new hypothesis -– and some analysts have disputed it in the past –- but the timing of the report is unsettlng in itself given that the market has slumped again.

Indeed, aside from being a longer-term depressant, selling by baby boomers -– the post-War contingent born between 1946 and 1964 –- could forestall any current-day recovery in the market from the global financial crisis.

“It is disconcerting that the retirement of the baby-boom generation, which has long been expected to place downward pressure on U.S. equity values, is beginning in earnest just as the stock market is recovering from the recent financial crisis, potentially slowing down the pace of that recovery,” the report says.

The only encouraging tidbit –- if it could be called that -– is that stock values could rise solidly in later years as the boomer generation ages. Stock prices should begin rising strongly starting in 2025, and by 2030 should be about 20% higher than in 2010, according to the report.

Good news -– provided, of course, that you can wait that long.

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-- Walter Hamilton