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A version of this text first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Join to receive future editions, straight to your inbox.
The wealth of the highest 1% hit a record $44.6 trillion at the top of the fourth quarter, as an end-of-year stock rally lifted their portfolios, in response to recent data from the Federal Reserve.
The entire net value of the highest 1%, defined by the Fed as those with wealth over $11 million, increased by $2 trillion within the fourth quarter. All the gains got here from their stock holdings. The worth of corporate equities and mutual fund shares held by the highest 1% surged to $19.7 trillion from $17.65 trillion the previous quarter.
While their real estate values went up barely, the worth of their privately held businesses declined, essentially canceling out all other gains outside of stocks.
The quarterly gain marked the newest addition to an unprecedented wealth boom that began in 2020 with the Covid-19 pandemic market surge. Since 2020, the wealth of the highest 1% has increased by nearly $15 trillion, or 49%. Middle-class Americans have also seen a rising wealth tide, with the center 50% to 90% of Americans seeing their wealth increase 50%.
Economists say the rising stock market is giving an added boost to consumer spending through what’s often known as the “wealth effect.” When consumers and investors see their stock holdings soar, they feel more confident spending and taking more risk.
“The wealth effect from surging stock prices is a robust tailwind to consumer confidence, spending and broader economic growth,” said Mark Zandi, chief economist of Moody’s Analytics. “After all, this highlights a vulnerability of the economy if the stock market were to falter. This is not the probably scenario, however it is a scenario provided that stocks appear richly (over) valued.”
Yet, the newest report also highlights how top-heavy stock ownership stays within the U.S. In accordance with the Fed report, the highest 10% of Americans own 87% of individually held stocks and mutual funds. The highest 1% own half of all individually held stocks.
Economists say a rising stock market brings outsized advantages to the rich, mainly boosting the high end of the patron and spending markets. The wealth of middle-class and lower-income Americans depends more on wages and residential values than stocks.
“Those households in the highest one-third of the income distribution and who own the majority of the stock holdings account for roughly two-thirds of consumer spending,” Zandi said.
Liz Ann Sonders, chief investment strategist at Charles Schwab, said stocks represent a growing share of the assets of the highest 1%. Stocks accounted for 37.8% of the general share of household assets for the highest 1% at the top of 2023, up from a recent low of 36.5%.
Yet since the wealthy needn’t spend as much of their gains – a phenomenon often known as the marginal propensity to devour – Sonders said the added stock wealth for the 1% may not have a considerable impact on the patron economy.
She noted that consumer confidence amongst those making greater than $125,000 a 12 months has been in “secular decline” since 2017, in response to the Conference Board.
“While the bump in stock prices might link to stronger confidence, it doesn’t necessarily point to stronger spending at the upper end,” she said.
With the S&P 500 already up 10% this 12 months, it is probably going that the wealth of the upper echelon has already topped the record at the top of 2023. While inequality declined barely in 2021 and 2022, as wages increased and housing prices surged, the wealth gap has since crept back to pre-pandemic levels.
The highest 1% accounted for 30% of the nation’s wealth at the top of the fourth quarter, while the highest 10% accounted for 67% of all wealth.
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