According to Goldman Sachs, stock ownership is extremely concentrated because of the growing wealth gap in the U.S., and thus the market’s performance affects households making up the wealthiest 1% of Americans much more significantly than the other 99%.
“The wealthiest 0.1% and 1% of households now own about 17% and 50% of total household equities respectively. This is up compared to the 1980s when it was 13% and 39% respectively.
America’s wealthiest own 50% of stocks elf by
households (David Foster/Yahoo Finance)
The above chart shows the growing wealth gap via ownership of financial assets. It illustrates the sharp decline in stock ownership share among the middle to upper-middle class citizens over the past few decades, while the richest Americans’ exposure to the market increased sharply.
Daan Struyven, Goldman’s chief economist explained that many believe that now when stocks sell off, there is a smaller decline in consumer spending because the richer people, whom by definition are insulated by more wealth, take the biggest hit. However, Struyven argued this is not the case. On the contrary, the higher concentration of stock ownership results in a bigger drag on consumer spending when the market sells off.
“While the share of equities owned by the wealthiest households has risen over the last three decades, equity holdings have more than tripled as a share of disposable income at the aggregate level and have also risen substantially for middle and upper-middle wealth groups. Therefore, a 1% move in stock prices now has a much larger impact on wealth levels for most groups,” he explained.
Additionally, Struyven said that the spending on luxury goods purchased by wealthy people is highly sensitive to stocks. This includes jewellery, watches, yachts and planes.
So what does that mean? Inequalities have grown significantly. Rise in the stock market is no real measure of the average Joe’s welfare. A severe drop in stock will impact sale of luxury goods.
The richest 1% own 50% of stocks held by American households, Heidi Chung, Yahoo Finance, January 17, 2019