Mark Hulbert

Mon, Jun 2, 2025, 12:43 PM4 min read

One reliable indicator of investor behavior suggests that stock valuations in developed markets will peak in the next decade or so and then begin a long-term decline.

The measurement for this prediction is demographics — in this case, the aging population of America and other developed markets.

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Long-term demographic trends are of little concern if you are a short-term-focused investor. But demography becomes quite important if you’re a decade or more from retirement and trying to devise an appropriate financial planning strategy for your nonworking years.

Researchers have found that the ratio of a country’s middle-aged population to its elderly is highly correlated with the long-term cycles of its stock market.

This ratio — known among demographers as the “M/O ratio” or “middle-old ratio” — is plotted in the chart below. It is calculated by dividing the number of those 40-49 by the number of those 60-69. (The M/O ratio data in the chart are from Alejandra Grindal, chief economist at Ned Davis Research.)

There is a distinct connection between the long-term trend shifts in the M/O ratio and the S&P 500 SPX. For example, the ratio hit a peak in 2000, coinciding with the end of the go-go years of the 1990s and the top of the internet bubble. The ratio then declined for more than a decade — a period coinciding with the global financial crisis and the 2008-09 bear market. The ratio has been in an uptrend since the mid-2010s.

The correlation is not perfect. The M/O ratio didn’t hit bottom until several years after the financial crisis, for example, by which point the stock market had already embarked on a new bull market. Furthermore, the ratio is of no help in predicting shorter-term bear markets, such as the one in 2022.

Nevertheless, the M/O ratio’s correlation with longer-term cycles is impressive, according to John Geanakoplos, an economics professor at Yale University and co-author of perhaps the topic’s seminal academic paper, published in 2002. He found evidence that demography provides “a single explanation” for the alternating 20-year periods of boom and bust since World War II.