The generational theory espoused by Tom Lee and Cathie Wood that could drive the bull market

Published Sat, Sep 18 20219:10 AM EDT

Closely-followed investors Tom Lee and Cathie Wood both see one thing driving the bull market for over a decade: millennials. "I do believe that both crypto and the equity markets are going to be powered by millennials," Cathie Wood, founder and CEO of Ark Invest, said at the SALT conference on Monday. Wood referenced research from Lee's Fundstrat that suggests the bull market in stocks may extend to 2026 or even 2038 as millennials build out their investing portfolios. Millennials — which are individuals born between roughly 1981 and 1996 — are the largest single generation ever, even larger than Boomers, said Fundstrat. Plus, the group's average age is 26.5, as they enter their prime income years. Lee — known for his prescient call about the market bottom during the Covid recession — said long-term bull markets last between 20 and 42 years and peak returns accelerate to cumulative gain of 500%. The current bull market has risen for 10 years and if the history plays out, the S & P 500 could reach 19,000 by the end of 2029, a Fundstrat report said. (It closed at 4,432.99 on Friday.) The basis for the long-term forecast surrounds strong expected demand in the housing and auto markets driven by millennials. Fundstrat expects housing starts could reach more than 2.5 million per year over the next decade. While Lee is betting that millennials will adopt the traditions of middle-aged Americans, like buying cars and home, Wood places large emphasis that millennials will disrupt the world order. Wood garnered a large fan club after her flagship fund, Ark Innovation, returned nearly 150% last year. The hot-handed investor gets much of her attention from a younger demographic that she said appreciates the place innovation has in the world today. Her fund is down about 5% this year amid a stark rotation from growth into value names; however, the portfolio manager told clients on Tuesday that this shift is coming back around imminently. "We think we're moving into the other side of the cycle," Wood said during an Ark Invest webinar on Tuesday. "We don't think we're looking at a recession yet but we do believe the market will start rotating back toward growth and innovation." The rise of meme stocks Millennials have already demonstrated the influence they can have on the market this year. Speculative activity exploded this year with the rise of retail trading. Day traders in online chatrooms managed to create massive short squeezes in names like GameStop and AMC Entertainment, which inflicted huge pain for short sellers and jolted volatility in the overall market. Many legislators and big investors have dismissed the amateur traders as reckless speculators who are not doing deep research. Wood said not to discount the sophistication and vision these smaller investors have. "Don't underestimate this group of people, they are actually more progressive than I think institutional investors are," Wood said earlier this year . "The millennials and the Gen Z's...they love learning," Wood added. "They're really excited about the new technologies that are evolving today, they're really at the leading edge of them and understand them and are comfortable with them and I have been very gratified at the kind of response we've gotten to our research and the engagement." Millennials love growth and crypto While Fundstrat's bold call is for the broader market, the firm notes that the type of stocks millennials prefer is important to this ongoing bull market. Millennials tend to prefer growth stocks and digital based companies, Fundstrat told clients. Many of these younger individuals are responsible for the $85 billion in assets under management for Wood's Ark Invest. Wood invests in high-growth, innovative companies that she expects will disrupt the world order. Ark Invest owns large stakes in companies like Tesla, Teladoc Health, Zoom Video and Square. Wood has been a longtime Tesla bull and her conviction on the electric car market hasn't dented even after the stock's massive rally in 2020. She said her base case for the stock is $3,000 in five years with the best case set around $4,000. Tesla is the biggest holding of Ark's flagship fund Innovation ARKK , accounting for more than 10.7% of the ETF. Plus, millennials also love bitcoin and blockchain, noted Fundstrat. Wood said the price of bitcoin could surge tenfold in the next five years to $500,000 if companies continue to diversify their cash and institutional investors continue to allocate 5% of their portfolio to the space. The investor has grown increasingly bullish on ether, saying her portfolio now consists of 60% bitcoin and 40% ether. "Ether is seeing an explosion in developer activity thanks to NFTs and De-Fi," Wood said. "Our confidence in ether has gone up dramatically."

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Closely-followed investors Tom Lee and Cathie Wood both see one thing driving the bull market for over a decade: millennials.