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- Vincent Deluard, the director of global macro strategy at INTL FCStone, sees a stark resemblance between millennial-adored stocks and the "Nifty Fifty" holdings of the 1960s — a comparison that should have investors worried.
- He breaks down why he thinks the market’s elite FAANG stocks — Facebook, Amazon, Apple, Netflix, and Google/Alphabet — have peaked, referring to them as "generational."
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Millennials have a reputation for ruining everything.
They’ve been blamed for tarnishing shopping malls, marriage, face-to-face interactions, and physical cash, just to name a select few.
But the yoga-enthused, avocado-toting generation isn’t all bad, according to one Wall Street expert — and he thinks they deserve major credit for assisting the longest bull market in history.
That would be Vincent Deluard — the director of global macro strategy at INTL FCStone — who refers to the unprecedented run of stock-market prosperity a "demographic phenomenon" driven by millennials.
"From ride-sharing apps to social media, electric cars to e-commerce, binge-streaming of original series to environmentally-conscious foods, this bull market has been led by millennials’ tastes," he said in a recent client note.
That specifically means the ever-loved FAANG cohort consisting of Facebook, Amazon, Apple, Netflix, and Google parent Alphabet — stocks the majority of millennials would never dream of living without. Imagine not being able to Google something, accept a new friend request from Facebook on your iPhone, or watch Netflix through your Fire TV Stick. It’s a scenario unthinkable to most.
To contextualize how important FAANG stock are to investors, consider that they’ve accounted for more than half of the gains in the S&P 500 over the last four years.
But there’s a major catch: These millennial-driven companies and brands have risen so much over the past decade that their valuations no longer look sustainable, at least to skeptics like Deluard. In his mind, the stocks most-loved by millennials have peaked.
He’s focused on how growth is starting to slow for these firms. Considering profit expansion has been the single biggest driver of stock gains throughout the bull market, that’s a problematic development.
Delaurd specifically highlights the closing sales-growth gap between FAANG and the S&P 500. The graph below illustrates a once-wide divergence, now narrowing at a rapid pace.
Deluard
To further his point, Deluard draws parallels between the most millennial-loved stocks and the "Nifty Fifty" — a set of issues once beloved by the baby boomers in the 1960s.
Boomers pushed the Nifty Fifty stocks to sky-high valuations as they became infatuated with emerging brands and trends. But as they started to mature, and their preferences and tastes started to change, the stocks that associated with their adoration experienced massive drawdowns.
By Deluard’s logic, if the best predictor of future behavior is past behavior, then the FAANG stocks are in for a world of hurt — and he’s not ruling out a bear market.
"The Nifty Fifty provide an interesting historical precedent for investors: these high-growth stocks which catered to the tastes of the rapidly expanding cohort of boomers reached their peak in 1972," he added. "Most of these companies kept doing well, but their high-multiple, high-growth stocks were decimated in the brutal bear markets of the 70s."
The chart below provides a contextual look at the price-to-earnings valuations between Millennial-adored brands and the Nifty Fifty of 1972.
Deluard
For these reasons, Deluard thinks that the aging millennial cohort will no longer be responsible for shaping the market’s future returns, as the newer, increasingly influential Generation Z starts to mature as a consumer force.
"The recent struggles of millennial-oriented companies may simply reflect that millennials are no longer cool," Deluard said before concluding: "Trends are not set by balding pot-bellied dads and strolling-pushing moms."
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See Also:
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Source: Business Insider – ccompetiello@businessinsider.com (Christopher Competiello)