As the world population continues to age, the implications for the stock market are becoming increasingly concerning. According to JPMorgan strategists, this demographic shift is expected to result in lower returns, reduced earnings growth, and weaker valuations.
Decreased Returns and Earnings Growth
JPMorgan strategists predict that a 1% increase in the share of individuals over 65 will lead to a significant 0.92% decline in annual stock returns. This trend is likely to persist over the next few decades, ultimately impacting the overall performance of the stock market.
Impact on Investment Capital and Innovation
With an aging investor base focused on retirement savings, there will be a decrease in investment capital available for innovation. This, coupled with slower workforce growth, is expected to negatively affect earnings growth for companies in various sectors.
Global vs. Local Population Aging
The strategists highlight that companies with a higher revenue share from international operations will be more susceptible to the effects of global population aging. This is anticipated to have a more significant impact on smaller and mid-cap equity market indexes compared to those with primarily large-cap stocks.
Healthcare Sector as a Bright Spot
Despite the challenges posed by aging populations, the healthcare sector is projected to benefit from increased spending by older individuals. JPMorgan strategists note a positive relationship between aging demographics and excess returns in the healthcare sector, driven by accelerated earnings growth.
Country-Specific Impacts
It is important to note that the aging population trend will not affect all countries equally. For instance, China is expected to experience a notable increase in the elderly population share, while the United States will see a more moderate rise.
Challenges and Risks
Economists have raised concerns about the potential burden that aging populations may impose on the economy. Additionally, the higher percentage of older individuals owning stocks in the US poses a risk to market volatility, as they may be more inclined to sell during market downturns.
In conclusion, the aging global population presents complex challenges for the stock market, with implications for returns, earnings growth, and valuations. Companies and investors alike will need to navigate these demographic shifts strategically to mitigate risks and capitalize on emerging opportunities.
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By: kcloonan@insider.com (Kelly Cloonan)
Title: The Impact of Global Aging Population on the Stock Market
Sourced From: markets.businessinsider.com/news/stocks/aging-world-population-stock-market-risk-jpmorgan-returns-valuations-growth-2024-9
Published Date: Sun, 08 Sep 2024 12:31:02 +0000
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