Meow. That's the sound of the 2023 bull market being gobbled up by the big boys who make up the vast majority of the stock market's wealth. How vast? Try a record 93% of value owned by the richest 10% of society, according to none other than the Federal Reserve.
It gives a different spin to intense confinement that stocks continued since spring 2020, with the S&P 500 more than doubling in value, going from 2,304 in March 2020 to closing at 4,769 on the last trading day of last year. That figure even takes into account that the market is falling into a bona fide bear market in 2022 in the middle rising inflation and the bitterness of the pandemic favorites, for example the โcrypto winterโand the end of meme stock mania.
These figures are even more notable when you consider that they do not equate to stock ownership ratios. In fact, the number of Americans owning stocks also hit a record high: 58% of all Americans invested in stocks in some form, also according to Federal Reserve data. This means that many of us own stocks, but only the top 10% have truly valuable holdings.
The figures are a reminder that last year's rising tide has not necessarily lifted all boats, revealing that even as the rows of retail investors increased, the increase in stock value overwhelmingly reached the top.
That's a function of basic mathematics. The 84% rise in the S&P 500 since the end of 2020 is worth much more in dollar terms when applied to an initial amount of $100,000 than to a retail investor who is putting up $2,000.
โThe higher you go on the income ladder, the more likely someone is to own assets like stocks and retirement accounts and, on average, the more they will have,โ said Steve Rosenthal, senior researcher at the Tax Policy Center. "The rich will have mega accounts, including mega IRAs, and the middle class and the poor will be able to own some stocks, but they will be very few."
The average stock holding of the richest tenth, which in 2022 included households worth $1.9 million or more, was $608,000, a figure that includes stocks held directly as well as shares in retirement or mutual funds . Meanwhile, the poorest half of Americans (households with a net worth of $192,000 or less) typically held stocks worth just $12,500.
Even within the wealthiest fringe, almost all of the stock growth has gone to the top 1%, said Chuck Collins, who directs the inequality program at the left-leaning Institute for Policy Studies.
Two decades ago, after the dotcom crisis, the richest 1% owned 40% of the wealth in public markets; Today, its participation is 54%.
And Collins believes that's by design. Policies of the past decade โhave encouraged asset growth and discouraged wage growth,โ he said. โAs much as wages have risen, the rules of the economy have been tilted toward asset owners at the expense of wage earners.โ
In his view, and in the belief of many progressive economists, the impressive stock market gains of recent decades are directly related to policies that reduce the amount of money people can earn in other ways, including wages, pensions and taxes that can redistribute the earnings. from the richest to the poorest.
There are โtax cuts and evasion at the highest levels, and very low minimum wages that do not reflect productivity gains among average workers,โ Collins said. Since the late 1970s, even as American workers became more productive, their wages fell far short of the value they/they/you were contributinga change that coincided with the popularity of Friedman Doctrinewhich held that the sole purpose of corporations was to make money for shareholders.
Since the late 1970s, Collins notes, โproductivity gains have gone primarily to social capital and shareholders.โ
More classically liberal advocates (as in Adam Smith) of free markets argue that this is a good thing: over the long term, stock markets have provided the best performance of any asset class, and encouraging broad participation in these markets is a way to spread prosperity widely. , goes the argument. It's the idea behind, for example, the rise of 401(k) plans instead of pensions, and George W. Bush's philosophy of a property company โ people can do better by managing their own money than by waiting for society to provide it.
But today's markets are much tighter than before, and not just in terms of property. The stock market's 20% rise this year has been fueled by just a handful of superstar companies. The so-called magnificent seven have a market capitalization equivalent to that of the stock markets of Canada, Japan and the United Kingdom, according to Torsten Slok, chief economist at Apollo. noted this month.
This type of concentration discourages participation by driving the most successful stocks above the level that many investors can afford. And the era of โeasy moneyโ as ultra-low interest rates were derisively called, allowed many companies that would previously have been listed on stock exchanges to sell to private equity, reducing the total number of publicly traded companies by more than 40% since the mid-1990s. ninety. (It must be recognized that commentators like economic historian Edward Chancellor denounce the distortions of such abundant capital.) Likewise, the current state of the market, in which 1% of Americans control more than half of the stock market wealth, offers another perspective on the economic rise of the pandemic and why an economy that is strong in the aggregate is leaving many people cold.
โThe idea that there is a democratization of markets is very overrated. 93% of all assets are in the top 10%; I donโt know what kind of democracy youโre living in,โ Collins said. โThe four-decade-long rise in wealth to the top basically continues.โ
