Stocks accounted for about 45% of U.S. households’ financial assets in the second quarter. Michael Nagle/Bloomberg/Getty Images
As noted by CNN
The current wave of consumer investors in the U.S. is holding record sums in stocks, but this growth brings with it new risks in the event of a potential stock-market downturn.
According to the Federal Reserve, direct and indirect ownership of stocks, including mutual funds and retirement plans, stood at a record 45% of household financial assets in the second quarter. This rise underscores how central the stock market has become to family balance sheets.
Along with market gains come concerns: how sharp stock swings could affect the financial stability of families, especially against the backdrop of a weaker labor market and persistent inflation.
The roots of this trend are varied: stock valuations have reached new highs, more and more people are entering the equity space, and pension schemes such as 401(k)s have actively included stocks in their portfolios over the past several decades.
A record share of stock ownership has a dual impact: on one hand, more people benefit from the growth of the corporate sector, while on the other – the sensitivity of households to downturns increases.
“The impact of both a rapid rise and a crash in the stock market will affect the economy far more strongly than, say, ten years ago.”
Analysts’ View on Risks and Future Returns
“This should serve as a warning, even if the buoyant stock market continues to rise for some time amid enthusiasm for artificial intelligence.”
“Indeed, our forecast is that the S&P 500 will continue to rise further this year and next, but the current exceptionally high share of stocks is a troubling signal that warrants close attention.”
“Investors should not expect the same magnitude of profitability as we have seen over the last decade to repeat.”
“In the future, over the next ten years, earnings are likely to decline.”
As the S&P 500 hovers near records, experts are also examining the concept of a “K-shaped economy,” where wealth concentrates at the top, while weaker groups continue to face difficulties or have fewer opportunities in the labor market.
As Michael Green of Simplify Asset Management notes: “those who have significant wealth in the stock market feel incredibly well; those who do not have such wealth and rely on employment as their primary asset face greater constraints in modern society.”
Data also point to structural changes in spending behavior: in the second quarter, more than 49% of consumer expenditures were attributable to the income of the top decile – the highest figure in the entire observation period since 1989, according to Mark Zandi, Moody’s Analytics’ chief economist. This indicates rising inequality: during downturns, wealth can noticeably influence spending and the psychology of the population.
“The stock market becomes a bigger engine of growth when you have such large exposure.”
“There is a greater risk that during extended market downturns this will start to weigh on household spending and affect sentiment, especially for people in the upper wealth brackets.”
The K-Shaped Economy and Future Trends
While the S&P 500 remains near record highs, analysts are increasingly talking about a possible “K-shaped economy,” where wealth is concentrated at the top, and the rest of the population faces more constrained opportunities and uneven chances of employment.
According to Michael Green of Simplify Asset Management, “those who have significant wealth in the stock market feel extremely well; those who do not have such wealth and depend primarily on employment as their main asset face greater constraints in modern society.”
In the context of consumer activity, experts note that the distribution of spending may influence overall demand: growing wealth at the top reinforces the wealth gap and may affect the pace of spending in the future, especially during a potential recessionary phase.
Bottom line: rising stock ownership offers benefits for those who own assets, as well as new risks for the financial stability of the population. Economists emphasize the importance of paying attention to different scenarios for development and readiness for fluctuations that could affect household spending and the overall economic sentiment among the population in the coming years.
You may be interested in these materials:
- US tariff policies under Trump continue to increase economic inequality, raising costs for low-income households and impacting supply chains across industries.
- US stock markets surged after the Federal Reserve cut interest rates, boosting investor optimism despite economic uncertainties and inflation concerns.
- US stock indices reach record highs despite economic pressures like inflation and rising living costs, driven by expectations of interest rate cuts and strong AI sector growth.
