The falling stock markets have set Americans back nearly $9 trillion, putting more pressure on family budgets and spending.
Americans who have corporate equities and mutual funds have seen their shares fall to $33 trillion at the end of the second quarter. These numbers are down from $42 trillion at the beginning of the year, according to data provided by the Federal Reserve.
In July, major market indexes fell, and the bond market has further losses to add. Economists say the drops will start rippling through the economy soon. This downward trend will quickly start adding pressure to Americans' budgets and household spending as well as borrowing and investing. Mark Zandi, the chief economist of Moody's Analytics, said that the losses recorded thus far could reduce real GDP growth by 0.2 percentage points over the next 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,” Zandi said.
The Rich Aren't Getting Richer
The top 10% are bearing much of the losses. They have lost over $8 trillion in stock market wealth this year. This loss marks a 22% decline in their overall stock wealth. The top 1% have lost $5 trillion, and the bottom 50% have lost around $70 billion in overall stock wealth.
These losses will mark a large-scale reversal for shareholders who reaped the benefits of soaring stocks since the pandemic. From 2020 to 2021, America's stock wealth doubled, going from $22 trillion to $42 trillion. Most of the wealth went to the top 10% because they hold around 89% of individually held stocks.
Because of the losses the top 10% has suffered, wealth inequality has actually fallen slightly this year. The share of wealth held by the top 10% declined to 68% from 69%.
Housing Wealth Is Canceled Out
Even though Americans have seen some wealth gain from rising home prices, the stock market losses have canceled out those gains. In the first half of the year, America's housing wealth rose to $41 trillion, however, this gain is only about one-third of the amount that has been lost in the stock market. And with rising mortgage rates, housing prices have begun to cool and decline in many markets.
This drop in stock wealth far exceeds the $6 trillion in quarterly stock losses that we saw at the beginning of the pandemic. While the markets have seen larger drops on a percentage basis only, this year's losses are some of the largest ever seen on a dollar basis.
The question everyone is asking is how the drop in stocks will affect consumer spending. Thus far, there is not much evidence to show that consumers have slowed spending. Some say that it will slowly catch up and bite people in the rear, especially if the market decline continues.
Zandi says that the loss in stock wealth could reduce consumer spending by as much as $54 billion in the next year. He did add that the “stock-wealth effect” is a lot smaller than in the past because the wealthy own such a large share of stocks and have “substantial excess saving built up from the pandemic.”
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This article was produced and syndicated by Wealth of Geeks.