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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up To receive future editions delivered directly to your inbox.
The wealth of the top 1% hit a record $44.6 trillion at the end of the fourth quarter, the latest data from the Federal Reserve showed, as a year-end stock market rally boosted their portfolios.
The Fed added that the total net worth of the top 1% of the population with wealth over $11 million increased by $2 trillion in the fourth quarter. All earnings come from the stocks they hold. The value of corporate and mutual fund shares held by the top 1% soared to $19.7 trillion from $17.65 trillion in the previous quarter.
While the value of their real estate rose slightly, the value of their private businesses fell – essentially offsetting all other gains outside of stocks.
The quarter’s growth marks the latest development in an unprecedented wealth boom that began in 2020 as the pandemic surged markets. Since 2020, the wealth of the top 1% has increased by nearly $15 trillion, or 49%. The American middle class has also seen a wave of rising wealth. The wealth of 50% to 90% of the American middle class has increased by 50%.
Economists said rising stocks further stimulated consumer spending through the so-called “wealth effect.” When consumers and investors see the stocks they hold soar, they feel more confident spending and taking on more risk.
“The wealth effect from soaring stock prices is a powerful driver of consumer confidence, spending and broader economic growth,” said Mark Zandi, chief economist at Moody’s Analytics. “Of course, if stocks fall, that highlights the economy’s Vulnerability. It’s not the most likely scenario, but it’s a scenario given that stocks appear overvalued.”
However, the latest report also highlights that the top-heavy situation in the United States remains. According to a Federal Reserve report, the top 10% of Americans own 87% of individual holdings in stocks and mutual funds. The top 1% own half of all individually held stocks.
Economists say the stock market rally has brought huge benefits to the wealthy, mainly driving the development of high-end consumption and spending markets. The wealth of middle-class and low-income Americans depends more on wages and home values than on stocks.
“Households in the top third of the income distribution and owning most stocks account for about two-thirds of consumer spending,” Zandi said.
along with S&P 500 Index It has grown by 10% this year, and it is likely that by the end of 2023, the wealth of the upper class will have reached a record high. While inequality fell slightly in 2021 and 2022, the gap between rich and poor has since begun to widen back to pre-pandemic levels as wages rise and house prices soar.
As of the end of the fourth quarter, the richest 1% held 30% of the country’s wealth, while the top 10% held 67% of all wealth.
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