Ex-Central Banker Urges Millennials to Play the Stock Market Right

As retail investors lead a stock market surge during the pandemic, ex-Bank of England governor Mark Carney has advice for young investors.
Posted in: MarketsOpinion
Published:
June 4, 2020 9:55 AM UTC
  • Former Bank of England governor Mark Carney believes millennials should explore for sustainable options.
  • In recent months, millennials and retail investors led the U.S. stock market to surge.
  • The Dow Jones increased by 2.05% in a single session on June 3.

Retail investors led the U.S. stock market to surge continuously since early May. But, former Bank of England governor Mark Carney thinks millennials should start looking somewhere else.

Rather than stocks, Carney encouraged young investors to explore safer alternatives.

What Are Lower Risk Alternatives to the Stock Market?

Market data shows institutional investors are increasingly focusing on low-risk bonds and cash.

Trends across the U.S. and European financial markets indicate that institutional investors anticipate a huge downturn in the stock market.

The U.S. stock market nearing the completion of a v-shape recovery | Source: Yahoo Finance

Wall Street heavyweights Stan Druckenmiller and David Tepper said last month that stocks are still overvalued. Druckenmiller, whose net worth is $4.7 billion, says the idea of a v-shape recovery is a “fantasy.”

Carney believes millennials will be better off employing the same strategy high net-worth investors are currently relying on.

Young investors are compelled by the strong momentum of the stock market and the plans of governments worldwide to provide more stimulus.

But, there is a reason why the biggest investment firms and billionaire investors are turning away from the stock market.

Wells Fargo saw record-high inflows into low-risk corporate bonds in the first half of 2020.

Investors are piling cash on banks and hedge funds but are not willing to re-enter the stock market.

Carney predicts that this is all a part of an adjustment period towards sustainability.

As the global economy gradually recovers in a post-pandemic environment, investors will likely seek sustainable and stable investment opportunities.

At the Virtual Fest conference, Carney stated:

As a younger person, who is going to be around for that adjustment and needs to benefit — I would want to be positioned for that.

Why Economists And Billionaires Say No to Stocks

The pessimism towards the stock market ultimately comes down to data.

There is not enough information to evaluate whether stocks are overvalued or undervalued based on international economic growth.

China said it will not disclose the nation’s economic growth rate in 2020. Due to massive disruptions in supply chains, low export numbers in Japan, South Korea, and Europe render most economic data irrelevant.

As an alternative option, the International Monetary Fund (IMF) suggested central banks adopt more innovative technologies and real-time data to observe the economy.

The IMF said:

To make the best-informed decisions, policymakers need a real-time readout of the economy. Many traditional official statistics—even those with monthly frequency—are just not sufficiently up to date to be useful at this time.

Example of a gloomy piece of economic data | Source: IMF

The message of Carney and prominent hedge fund managers to millennials is clear: if central banks struggle to evaluate economic data, how can you?

As the famous saying goes, the stock market is not the economy. But, the uncertainty around the pandemic and various geopolitical risks pose an immense threat to stocks.

Hedge funds are holding over $591 billion, scared to invest in the stock market.

Millennials rushing into stocks at this time will either be remembered as genius or reckless, and only time will tell.

Samburaj Das edited this article for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor or find a factual, spelling, or grammar error, please contact us.

Last modified: June 4, 2020 11:27 AM UTC

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Joseph Young @iamjosephyoung

Financial analyst based in Seoul, South Korea. Contributing regularly to CCN and Forbes. I have covered the stock market and bitcoin since 2013.