The wealth of the top 1% hit a record $44.6 trillion at the end of the fourth quarter, driven by an end-of-year stock rally. This group, defined by the Federal Reserve as those with wealth over $11 million, saw their total net worth increase by $2 trillion. The gains were primarily from their stock holdings, with the value of corporate equities and mutual fund shares rising to $19.7 trillion. While real estate values saw a slight increase, the value of privately held businesses declined, offsetting gains outside of stocks. This latest surge in wealth is part of an unprecedented boom that began in 2020, with the wealth of the top 1% increasing by nearly $15 trillion, or 49%.
Middle-class Americans have also experienced a rising wealth tide, with the middle 50% to 90% seeing their wealth grow by 50%. Economists point to the rising stock market as a key factor in boosting consumer spending through the “wealth effect.” When stock prices rise, consumers and investors are more confident in spending and taking risks. However, there is concern about the economy’s vulnerability if the stock market were to falter, given its rich valuation.
The report also highlights the top-heavy distribution of stock ownership in the U.S. The top 10% of Americans own 87% of individually held stocks and mutual funds, with the top 1% owning half of all individually held stocks. Economists emphasize that a rising stock market disproportionately benefits the wealthy, primarily boosting the high end of the consumer and spending markets. Middle-class and lower-income Americans rely more on wages and home values than stock investments for their wealth and spending.
While the share of stocks in the assets of the top 1% is growing, reaching 37.8% at the end of 2023, the impact on consumer spending may be limited. The wealthy, who have a lower marginal propensity to consume, may not significantly increase their spending despite gains in stock wealth. Consumer confidence among those earning more than $125,000 has been in decline, suggesting that higher stock prices do not necessarily translate to stronger spending at the upper end of the income spectrum.
Despite a slight decline in inequality in 2021 and 2022, driven by wage increases and surging housing prices, the wealth gap has returned to pre-pandemic levels. The top 1% now accounts for 30% of the nation’s wealth, with the top 10% holding 67% of all wealth. With the S&P 500 already up 10% this year, it is likely that the wealth of the wealthiest individuals has surpassed previous records by the end of 2023. The trend of growing wealth inequality poses challenges for economic stability and social cohesion in the United States.
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