Dow 40,000 And Counting

This is an excerpt from the May 20, 2024 Yardeni Research Morning Briefing.

The Baby Boomers have been heavily influenced by a couple of Spocks—Dr. Benjamin Spock and Spock of Star Trek, played by Leonard Nimoy. Dr. Spock was a pediatrician who wrote Baby and Child Care (1946). It became the unofficial bible of child rearing as millions of mothers read it and raised their Baby Boom children according to the book’s advice. In the 1960s and 1970s, conservatives blamed Dr. Spock for causing parents to be too permissive by providing instant gratification to their children, who turned into the “Spock generation,” a bunch of anti-establishment rebellious youths. Of course, subsequent decades found the generation settling into “establishment” jobs and reaping the monetary benefits.

In Star Trek, Spock was the son of a mixed marriage, with his father a Vulcan and his mother a human. He first appeared in the original TV series serving aboard the starship USS Enterprise as science officer and first officer and later as commanding officer of the vessel. He was famously logical and unemotional. That combination didn’t rub off on his audience. But as it turned out, the Baby Boomers did follow Spock’s Vulcan salutation: “Live long and prosper.” They’ve lived long, and they have prospered.

Real GDP has increased significantly over the course of the Boomers’ lives, and both stock prices and home prices have soared. The Baby Boomers were born from 1946 to 1964. The oldest of them turned 25 in 1971, while the youngest did so in 1989. Today, the oldest are 78 and the youngest are 60. They prospered during their long lives along with the rising stock market and the growing economy:

(1) During the Boomers’ adult lifetimes so far, the Dow Jones Industrials Average (DJIA) increased 40-fold from 1000 in late 1982 to just over 40,000 on Friday (Fig. 1). The S&P 500 matched that gain, with its market capitalization rising from $1.0 trillion in 1982 to over $40.0 trillion currently (Fig. 2 and Fig. 3).

(2) Since late 1982, nominal GDP is up more than eight-fold (760%) (Fig. 4). The increasing prosperity of America has been reflected in the increasing percentage of services relative to goods in GDP (Fig. 5). In 1982, services accounted for about 50% of nominal GDP. This percentage rose to 60.5% during Q1-2024.

(3) Real personal consumption expenditures per household rose from about $55,000 in 1982 to $119,800 (saar) at the start of this year (Fig. 6). By this measure, the standard of living doubled over those four decades. Real average hourly earnings rose more than 40% since it bottomed in the mid-1990s from about $17 per hour to $24 per hour for production and nonsupervisory workers, who account for about 80% of the labor force (Fig. 7).

(4) Since 1982, after-tax corporate profits increased 14-fold (Fig. 8). S&P 500 reported earnings per share is also up 14-fold over this period (Fig. 9).

(5) The Fed has compiled the net worth of households since Q1-1990. The net worth of Baby Boomer-led households has increased 19-fold from $4.1 trillion at the start of the data to $76.2 trillion during Q4-2023 (Fig. 10). The value of corporate equities and mutual funds (excluding money market mutual funds) held by Baby Boomers has risen from $0.3 trillion to $21.6 trillion over this period (Fig. 11). Their owners’ equity in household real estate is up from $4.6 trillion in 1990 to $16.0 trillion now. They’ve lived long and prospered (Fig. 12).

(6) In our Roaring 2020s scenario, the DJIA could increase 50% through the end of the decade to 60,000 in 2030 (Fig. 13). The S&P 500 should also increase 50%, to 8000, in this scenario.

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