The wealth of the top 1% hit a record $44.6 trillion at the end of the fourth quarter, driven by a year-end stock rally that boosted their portfolios. According to the Federal Reserve’s latest data, the total net worth of the top 1%, defined as those with wealth exceeding $11 million, increased by $2 trillion in the fourth quarter. The surge in their wealth was primarily attributed to gains in stock holdings, with the value of corporate equities and mutual fund shares seeing a significant increase from the previous quarter.
Economists point out that the rising stock market has had a profound impact on consumer spending, leading to what is known as the “wealth effect.” When individuals see their stock investments grow, they tend to feel more optimistic and are inclined to spend more and take on greater financial risks. Mark Zandi, the chief economist at Moody’s Analytics, highlights this phenomenon by stating that the surge in stock prices acts as a powerful tailwind for consumer confidence, spending, and overall economic growth.
Despite the overall positive impact on the economy, the latest report emphasizes the existing income disparity in stock ownership in the United States. The top 10% of Americans are reported to own 87% of individually held stocks and mutual funds, with the top 1% owning half of all individually held stocks. This disparity underscores how a rising stock market predominantly benefits the wealthy, while middle-class and lower-income Americans rely more on wages and home values for wealth accumulation.
Liz Ann Sonders, the chief investment strategist at Charles Schwab, sheds light on how stocks play a significant role in the asset composition of the top 1%. However, she notes that the additional stock wealth amassed by the wealthy may not have a substantial impact on the consumer economy due to their lower propensity to spend. Sonders mentions that despite the rise in stock prices potentially boosting confidence among high-income earners, it does not necessarily translate to increased spending at the top end of the market.
While the S&P 500 has already seen a 10% increase this year, signaling further wealth accumulation among the top 1%, experts warn of the widening wealth gap. In 2021 and 2022, inequality had slightly decreased as wages rose and housing prices surged, but recent trends indicate a return to pre-pandemic levels. By the end of the fourth quarter, the top 1% held 30% of the nation’s wealth, while the top 10% accounted for 67% of total wealth, highlighting the persistent wealth gap in the country.
The data reflects a stark reality of wealth distribution in the United States, with the top 1% experiencing record net worth gains while the majority of Americans rely on sources other than stocks for wealth accumulation. As policymakers and economists continue to monitor these trends, addressing income inequality and ensuring equitable economic growth remain critical challenges for the future.