The rise of a new generation
Portfolio Manager Steve Chiavarone discusses why he believes we’re in the midst of another industrial revolution and how millennials fit in to this changing economic landscape.
Published February 6 2019
Views as of 2-06-2019 and are subject to change based on market conditions and other factors.
I'm Steve Chiavarone, a Portfolio Manager at Federated Investors.
Why do you believe we're in the midst of another industrial revolution?
Look, there's clearly a pick up in technological progress across the spectrum, from AI to automation, advanced robotics, the Internet of things, block chain, 3D printing and even biotech. What makes this an industrial revolution and not simply just a pick up in technology, is it's having a real, profound impact on the overall economy. So you see this in people moving back into cities, the rise of small business, you can also see it in our politics being driven to a little bit more extremes. These are classics features of an industrial revolution, and while there's disruption, we think is particularly interesting and an opportunity here, is it's driving the economy to a more efficient place. So you have large companies that are focusing on increasingly, on making high volume, low priced, automated good for the masses and you have an emerging class of craft companies who are filling a niche, and they're coming in, making low volume, higher priced, more specific goods, more customized goods for the high end. When you put that together, it makes the economy more efficient. And what we think it allows for investors, is an economy that produces higher growth, higher earnings, higher overall productivity and all of that with less inflationary pressures because there's an endless assault on price and cost. That is a really exciting time for corporate earnings.
How do millennials fit in to this landscape?
So alongside of what's going on on the digital revolution side, you have a rise of a new generation. So there's 92 million millennials, which is 15 million more than there ever were Baby Boomers. So this is the largest generation in our history that's coming of age, and this generation is actually the United States' greatest natural resource because a lot of other major economies don't have a young and up and coming population. Now there's a lot of myths about these folks and everyone likes to dislike the millennials, but the truth is, is this group has less than average debt, an emerging wealth base and a higher and higher appetite for equities as they go from their early years of life, that college to 30, where they're paying down debt, funding short term goals. When they hit the magic age of 30, would all of a sudden starts to happen is they form families, they're now funding education, they're catching up on retirement and there's an increased appetite for equities cause they need higher returns. So what we have is an upward pressure on earnings in the economy from the digital revolution, an upward appetite for equities from this emerging generation and when you put those two things together, you have the makings of a secular bull market in the long run.
Views are as of February 6, 2019, and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. Investments are subject to risk and fluctuate in value. The value of equity securities will rise and fall. These fluctuations could be a sustained trend or a drastic movement. Bond prices are sensitive to changes in interest rates and a rise in interest rates can cause a decline in their prices. Federated Global Investment Management Corp. 19-10022 (2/19)