According to Federal Reserve data, American holdings of corporate stocks and equity investment shares decreased to $33 trillion at the end of the third half from $42 trillion at the beginning of the year. Industry experts estimate that the current wealth deficits from financial markets could exceed $9.5 trillion to $10 trillion because of main market indexes declining even more since early July and the financial markets adding additional losses.
According to economists, the decreases might soon begin to spread throughout the economy, putting more pressure on Americans’ bank sheets and potentially harming their ability to spend, borrow, and invest. Based on Moody’s Analytics Chief Economist Mark Zandi, the losses might hold back real GDP growth by up to 0.2 percentage points in the upcoming year.
“The loss of stock wealth suffered to date, if sustained, will be a small, but meaningful headwind to consumer spending and economic growth in coming months.”Mark Zandi, Moody’s Analytics Chief Economist
Due to their large stock holdings, the affluent are suffering the greatest losses. The Federal Reserve estimates that the income of the wealthiest 10% of Americans has decreased by 22% this year, or about $8 trillion, due to stock market losses. The stock market wealth of the top 1% has decreased by more than $5 trillion. About $70 billion in stock worth has been lost by the lowest 50%.
For stockholders who have witnessed historic wealth accumulation from surging stocks since the outbreak, the losses represent a significant and abrupt reverse. America’s stock worth increased from $22 trillion to $42 trillion, nearly doubling between the market downtrend in 2020 and the peak at the end of 2021. According to the Federal Reserve, the wealthiest 10% of Americans own 89% of the stocks that are privately held, meaning that most of that wealth went to them.
Wealth disparity has marginally decreased this year because of dropping stock prices, with some at the top paying most of the losses. At the end of the third half, the richest 1% possessed 31% of the country’s household wealth, down from 32.3% at the start of the year. The top 10%’s portion of wealth decreased from 69% to 68%.
Although the increase in property prices has made Americans wealthier, the benefits have been more than negated by stock market declines. In the first half of the year, the value of American homes increased by $3 trillion, reaching $41 trillion. The gain only makes up about a third of the stock market losses. Nevertheless, housing values have started to fall or cool in several cities because of rising mortgage rates.
Additionally, the decline in market value is much worse than the $6 trillion in quarterly stock losses that occurred at the start of the epidemic in 2020. Although there have been bigger percentage dips in stock markets, this year’s stock losses are among the biggest ever in terms of dollars.
How much will the stock market falls affect consumer spending is the great unknown. There aren’t many indications that wealthy consumers are cutting back on purchases as of now. However, some believe the “negative wealth effect,” which holds that spending drops when wealth declines, may start to take hold soon, particularly if market declines persist.
According to Zandi, lost stock wealth in the United States might cause a $54 billion drop in consumer spending in the upcoming year. He continued, however, that because the wealthy own such a significant percentage of stocks and have “considerable excess saving built up throughout the pandemic,” the “stock-wealth effect” is less pronounced than in the past.
“Since their saving cushion is so large, they won’t feel as compelled to save more given the decline in their stock wealth.”Mark Zandi
Information from CNBC