Millennials are approaching prime earnings age and the demographic shuffle could drive interest rates higher through 2030, Fundstrat's Tom Lee says

Millennials are approaching prime earnings age and the demographic shuffle could drive interest rates higher through 2030, Fundstrat's Tom Lee says
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  • A structural rise in interest rates through 2030 is possible as millennials enter their "prime leverage age", according to a Fundstrat note.
  • A jump in economic growth, in part drven by the millennial population, will support higher inflation and interest rates, according to Lee.
  • To position for a lasting jump in interest rates, Lee recommends investors buy cyclical stocks that are tied to the reopening of the economy.
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Investors have been conditioned to expect near-zero interest rates since the onset of quantitative easing by the Federal Reserve amid the Global Financial Crisis in 2008.

But for the first time in decades, a structural rise in interest rates could materialize through 2030 as millennials enter their peak earnings age of 30-50, according to a Wednesday note from Fundstrat's Tom Lee.

Since 2016, the five-year growth rate of US adults in their "Prime Leverage Age" turned positive and continues to rise after being in a virtual freefall since the early 1990s. A similar upturn in 1972 through the 1980s coincided with a substantial rise in interest rates, Lee observed.
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Americans are thought to enter their prime leverage age once they hit 30 and through 50, as they often get married, form a family, take on mortgage debt to buy a house, and see a sizable increase in their annual wages.

This leverage is what helps fuel growth in the economy, which is constructive for a rise in interest rates, according to Lee.

"In fact, even the upturn in 'prime age' Americans also argues for CPI or inflation to rise. Since 1935, there seems to be a casual relationship between this growth of the cohort and CPI," Lee explained, before adding, "if true in today's context, inflation should be rising over the next decade."
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To position for a potential lasting jump in interest rates, Lee recommends investors buy cyclical stocks in the industrials, energy, and financials sectors that are tied to a physical reopening of the economy.

"If interest rates are set to move higher, this is a tailwind for Epicenter stocks," Lee said.
Millennials are approaching prime earnings age and the demographic shuffle could drive interest rates higher through 2030, Fundstrat's Tom Lee says
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