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Millennial In - Billionaires Out

(Fri, 5 Jun 2020). Millennials are continuing to pile into the stock market even as hedge funds caution about the strength of this FOMO rally.

Millennials are using their age to their advantage with bullish bets on the stock market. Wall Street’s billionaires are more cautious about the strength of the FOMO rally. Much of what happens next depends on whether the stimulus funds keep flowing. The stock market’s epic rally over the past two months has created a debate between Wall Street’s heavyweights and an unlikely army of millennials.

Younger traders are piling into equities, betting that the U.S. economy is heading for a sharp recovery that will eventually support the market’s ballooning valuation. But many of Wall Street’s elite are pounding the panic button and warning that this FOMO rally is bound to come crashing down in the months ahead.

 

Millennials Believe FOMO Rally Can Continue

Trading app Robinhood is having a moment in the sun as millennials use its low-cost investing model to access the stock market at one of its most volatile periods in history. The firm said it saw a record number of signups in the first quarter as the market took a nosedive. Despite the S&P 500’s 30% rise since then, millennials are still buying.

Millennials have been a vital driver of the stock market’s FOMO rally because they can use their age to their advantage. According to Robinhood, many of the trades millennials are placing have been in beaten-down sectors such as airlines, and they’re often long positions.

 

Billionaires Shun The Stock Market

By contrast, many hedge fund managers are starting to turn negative on the market after its meteoric rise. They argue that the market has gotten ahead of itself in recent weeks and that the reality of the economic devastation caused by the pandemic will eventually set in.

Dymon Asia Capital’s Danny Yong says the market has become detached from reality. He has been buying puts to protect his fund from another major correction. Elliot Management, which controls $40 billion worth of assets, noted that the overall trajectory of the stock market is likely lower by 50% or deeper from the February top.

 

Don’t Fight The Fed

The Federal Reserve’s unprecedented intervention has many feeling confident that the market can remain detached from reality until the economy can catch up. That appears to be the mantra than millennial investors live by, and some of Wall Street’s big wigs agree— it’s dangerous to bet against the Fed.

CEO of Aperture Investors Peter Kraus has pointed to the magnitude of coordinated stimulus packages as a reason to continue betting on the stock market. But there is a limit to what central banks can do to prop up the stock market. Some of the responsibility falls on the U.S. government. That is where things could get dicey.

 

Consumer Spending: A Key Stock Market Driver

Consumer spending in the weeks ahead could make or break the stock market’s recovery and its unclear whether or not that will happen. Americans increased their savings substantially in April; now it’s a matter of getting them to return that cash to the economy. But many are still grappling with uncertainty over whether their job loss will become permanent, and that could put a damper on spending. More fiscal stimulus is likely needed to inject confidence into U.S. consumers, something Donald Trump has been trying to push through. But Trump will likely face a great deal of resistance from Democrats in the House.

 

Millennials Vs. Wall Street

So, who will come out on top as the FOMO rally marches higher? For now, it’s the millennials who’ve been riding the stock market’s recovery since March as their billionaire counterparts sit on the sidelines. But as Kraus pointed out, markets are expecting more stimulus. If it doesn’t come, that could be the first domino to fall, kicking off a correction that would prove the hedge funds waiting for the other shoe to drop right.

 

 

 

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