What will the world look like in 2050? Some trends are easy to forecast—like demographics. Based on birthrate trends and life expectancies, the UN projects the Earth’s population will top 9.7 billion by then. Sociologists foresee the vast majority of that population living in urban areas, theoretically requiring a massive increase in electricity generation and other infrastructure. Demographers also see most of that population increase happening in the Southern Hemisphere, with aging (and eventually shrinking) populations in the north. These are all interesting from an academic perspective, but for investors, Fisher Investments thinks they are of little use. For markets, demographics aren’t destiny—they don’t predict stock returns or which countries, industries or companies will be the biggest winners as these shifts play out.
Like all prices, stocks move on supply and demand. In Fisher Investments’ experience, the latter gets most attention, as it typically drives short-term moves. Stocks trade in an auction marketplace and are always worth whatever investors are willing to bid for them at a given time. Demand can change on a dime, but supply moves much more slowly. Initial public offerings (IPOs) take months to play out. So do stock buybacks, which reduce supply. Bear markets can begin when runaway supply increases outstrip demand—the dot-com bubble is a prominent example—but more often than not, demand is the swing factor in the short term.
Overemphasizing demand as a market driver often leads people to presume that if and when populations in the Northern Hemisphere age and decline, it will lead to weaker returns—fewer working-age people means fewer buyers of stocks, they argue. Fisher Investments thinks this logic doesn’t withstand scrutiny. One, if you presume the Southern Hemisphere will develop rapidly over the same period, it would stand to reason that growing demand for stocks there would offset a potential decline in the north. Two, that decline in demand is far from a given. With longer life expectancies come longer investment time horizons—retirees need to make their savings provide for them for many more years. Owning stocks is key to that, in Fisher Investments’ view. Three, demographic projections largely ignore the potential for higher immigration, which is impossible to forecast because immigration policies aren’t a market function.
Most importantly, though, forecasting based on demographic effects on demand ignores supply, which is impossible to forecast in the long run. Consider: The Wilshire 5000 Index, which includes every publicly traded US company, doesn’t presently include 5,000 stocks—that is simply how many it included when it launched in 1974. Did people know then that it would mushroom to over 7,500 constituents by the late 1990s?[i] At the heights of the dot-com boom, did people know that the IPO frenzy would cease and the Wilshire 5000 would decline to just 3,641 constituent companies as of September 30, 2021?[ii] All the factors that influence supply—including regulations, tax policy, private equity and more—are impossible to predict, as they depend on a host of human variables. We aren’t aware of anyone who even tries. If they did, anyone claiming they can predict supply in the long run is just pretending, in our view.
Picking long-term winners and losers from population trends is similar guesswork. Take electricity. Extrapolating present trends forward would lead people to presume wind turbines and solar panels will dot every spare inch of open space in 30 years. But what if wind and solar are just fads? What if scientists have a massive nuclear fusion breakthrough? What if hydrogen takes center stage, both in electricity generation and auto fuel? Or what if there is some crazy new technology that no one has dreamt of yet? You can apply the same thought exercise to infrastructure and food production, not to mention pretty much every good and service in existence today. When massive mainframes dominated the computer world in the mid-20th century, even science fiction television couldn’t conceive of smartphones. In the original Star Trek, the Enterprise’s bridge controls looked like an old telephone switchboard—no touchscreens in sight. If even creative futurists can’t predict how technology will evolve, what hope do mere mortals have?
Ultimately, human capital is just one economic input, along with financial capital, technology and productivity—the unpredictable wildcards. This is why Fisher Investments thinks stocks don’t look more than about 3–30 months out. Any impact from demographic shifts is likely beyond that range, if not far beyond it, and out that far there are just too many unknown variables on all fronts. Longer-term innovation and technological changes aren’t predictable. If they were, we would all have jet packs and flying cars by now. Stock supply isn’t predictable beyond the next couple of years, either. So don’t let far future projections, whether sunny or sour, influence your investment decisions today. Concentrate on where stocks look—the foreseeable future—and supply and demand within that window.
Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.