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A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for the high-net-worth investor and consumer. Sign up to receive future issues, straight to your inbox.
The wealth of the richest 1% reached a record $44.6 trillion at the end of the fourth quarter, as a year-end rally in stocks lifted their investment portfolios, according to new data from the Federal Reserve.
The total net worth of the top 1%, defined by the Fed as those with wealth greater than $11 million, rose by $2 trillion in the fourth quarter. All the gains came from their stock holdings. The value of corporate stocks and mutual fund shares owned by the top 1% rose to $19.7 trillion from $17.65 trillion in the previous quarter.
While their property values rose slightly, the value of their privately owned businesses declined, essentially canceling out all other non-stock gains.
The quarterly gain marks the latest addition to an unprecedented wealth boom that began in 2020 as the COVID-19 pandemic surged into the market. Since 2020, the wealth of the richest 1% has increased by about $15 trillion, or 49%. Middle-class Americans also saw a rise in wealth, with 50% to 90% of Americans seeing their wealth increase by 50%.
Economists say a rising stock market gives an extra boost to consumer spending through what's known as the “wealth effect.” When consumers and investors see their stock holdings rising, they feel more confident to spend and take more risks.
“The wealth effect of rising stock prices is a powerful tailwind for consumer confidence, spending and broader economic growth,” said Mark Zandi, chief economist at Moody's Analytics. “Of course, this highlights the vulnerability of the economy if the stock market falters. This is not the most likely scenario, but it is one given that stocks appear to be (more than) highly valued.”
However, the latest report also highlights how heavy stock ownership remains in the US. According to a Federal Reserve report, 10% of Americans own 87% of individually owned stocks and mutual funds. The top 1% own half of all individually owned stocks.
Economists say a rising stock market brings huge benefits to the wealthy, mainly boosting consumer markets and spending. The wealth of middle-class and low-income Americans depends more on wages and home values than on stocks.
“Those households in the top third of the income distribution that hold the bulk of stock holdings account for about two-thirds of consumer spending,” Zandi said. a
Liz Ann Saunders, chief investment strategist at Charles SchwabHe said stocks represent a growing share of the assets of the top 1%. Stocks accounted for 37.8% of the total share of household assets of the richest 1% at the end of 2023, up from a recent low of 36.5%.
However, because the wealthy don't need to spend as much of their earnings — a phenomenon known as the marginal propensity to consume — Saunders said the added stock wealth of the 1% may not have much of an impact on the consumer economy. .
She noted that consumer confidence among those earning more than $125,000 a year has been in “long-term decline” since 2017, according to the Conference Board.
“While a rise in stock prices may be associated with stronger confidence, it does not necessarily indicate stronger spending at the top end,” she said.
With the Standard & Poor's 500 With the wealth of the upper class already rising by 10% this year, it is likely that the wealth of the upper class will have already surpassed the record at the end of 2023. While inequality fell slightly in 2021 and 2022, as wages increased and housing prices rose, it has worsened. Wealth gap ever since. It has crept up to pre-pandemic levels.
At the end of the fourth quarter, the 1% of the population acquired 30% of the country’s wealth, while the 10% captured 67% of the total wealth.
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