As retail investors lead a stock market surge during the pandemic, ex-Bank of England governor Mark Carney has advice for young investors.
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.
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.
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.
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.
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.
Last modified: September 23, 2020 1:58 PM