When markets obsess over the news of the day, such as GameStop and a short squeeze of epic proportion (more on that in a bit), the best thing we can do as long-term investors is take a step back and focus on what drives the stock market, and the economy, over time. For the stock market, interest rates and earnings matter most – both are supportive of stocks. For the economy overall, the U.S. consumer matters most since the consumer drives 70% of our GDP. Even in the midst of a pandemic, the consumer is in very good shape.
Millennials, the 72 million Americans born between 1981 and 1996, are now the largest population cohort in the country and, we would argue, the best thing the U.S. has going for it from a demographic perspective. With the oldest Millennials turning 40 the generation is entering its peak earning and spending years. This dynamic should prove to be a meaningful tailwind for the U.S. economy, much like the Baby Boomers and the consumer driven economic expansion of the 1980s.
Now, back to GameStop. It seems any number of individual investors have formed an online collective and agreed to purchase shares of the heavily shorted, and it would seem challenged, retailer. As those purchases of GameStop drove the stock higher, any number of institutional investors (think hedge funds) who sold the stock short (thinking it was worth less, not more) had to buy back those shares to limit their losses (known as short covering), which drove the share price even higher. How will this end? We don’t know. For anyone considering purchasing GameStop, or the handful of other stocks that seem to be caught up in this individual vs institutional investor battle royale, we would simply suggest you have a clear, thought out case for doing so (which should go well beyond because the stock is going up). Finally, back to the Millennials; if you Google “Famous Millennial Movies” Napoleon Dynamite comes out on top; I am no Millennial, but that movie cracks me up. Vote For Pedro.
Tagged: Tim Holland, weekly wire, market perspectives, Millennial, investing, GDP