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Boomers are dominating the economy and benefiting from historic rate hikes. BofA explains which stock trades to make as millennials struggle.

Aruni Soni   

Boomers are dominating the economy and benefiting from historic rate hikes. BofA explains which stock trades to make as millennials struggle.
  • The way Boomers and Millennials are spending can inform investment decisions, Bank of America analysts say.
  • Travel, healthcare, and housing are attractive buys, as Boomers spend big in those areas.

We're in the middle of a "Boomer boom," as the wealthier older generation of Americans spends big on a wide range of goods and services.

Millennials, meanwhile, are spending less as they struggle through a tough macro environment—and there's a playbook to trade off the differences in economic fortunes between the two demographics, according to Bank of America.

In a note published in October, BofA analysts wrote that investors should go "long Boomer stocks" and "short Millennial stocks."

There are a few things that make Boomers strong consumers today. For one, they're much more insulated from the effects of rising rates compared to other generations. That's because Boomers have generally saved more, and they're being rewarded via higher yields on their savings accounts. Meanwhile, many older Americans also already own a home and aren't exposed to eye-watering mortgage rates that sit at multi-year highs.

Big changes in government spending and a massive wealth transfer from the public sector to consumers and corporations decades ago also benefitted Boomers when they were in their prime, Bank of America says.

Now, with their wallets bulging with excess cash, boomers are the top spenders in the US economy.

Specifically, they're spending a lot on health care, entertainment, and home improvement. Millennials on the other hand are spending less as they deal with higher interest rates. When they are shelling out, they're spending more on housing and apparel, but are generally more strapped for cash.

Importantly for investors, these trends hold clues about which sectors to pay attention to.

According to Bank of America data, Boomers and Traditionalists are the only groups increasing consumption right now, which should make the sectors that they're investing in attractive to investors. Millennials, meanwhile, are likely to further tighten their purse strings, shining a light on what parts of the consumer sector could struggle.

The Boomer trade

Boomers have a lot more leisure time, and a lot more money, and stocks in sectors like travel, healthcare, and housing will be beneficiaries of that.

"Travel was cited as the top priority for discretionary spend (85%) among the 50+ age group," the analysts wrote, citing AARP data. "Cruise lines are heavily exposed to Boomers, accounting for ~40% of travelers."

Boomers are also likely to spend a lot of money on housing and healthcare owing to their changing lifestyles. That means more senior homes and more personal care services. Bank of America highlights stocks in luxury housing like Toll Brothers, as well as Welltower, a real estate investment trust that operate senior housing communities, and which the analysts say is best positioned to capture the wealth of aging Americans.

Home improvement stocks also look to be winners, as boomers will probably hold on to their low-interest home loans instead of selling their house, meaning they'll put more money into home renovations as they age.

Millennials, meanwhile, are skint as borrowing costs shoot up and wealth accumulation gets stymied by a historically unaffordable housing market.

The plight of the younger cohort flashes a sell signal for the apparel sector, a major spending category for younger Americans.

"Even as overall spending has held up, clothing spending has decelerated in recent weeks," analysts wrote. "We think this is partly explained by the discrepancy in wealth and consumption between the age cohorts."

BofA analysts see the largest risks for retailers in the womenswear clothing business, given that their target demographic tends to be Gen Z and Millennials.

This story was originally published in October 2023.

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