U.S. wealth inequality has reached a new peak, with the top 10 percent of the wealthiest in the country now holding a record 93 percent of all American equities, according to Federal Reserve data.
According to the triennial Fed's Survey of Consumer Finances released in 2023, 58 percent of households owned stocks in 2022, marking a significant increase from 52.6 percent in 2019 and surpassing the pre-crisis peak of 53.2 percent in 2007.
While the rise in participation is notable, a stark reality persists—ownership remains heavily skewed towards the wealthy. The bottom 50 percent collectively hold a mere one percent of all stocks and mutual funds. It is consistent with the trend found in the Survey of Consumer Finances conducted in 2019.
A separate study by Gallup further underscores the surge in stock market participation. Its April 2023 Economy and Personal Finance survey found that 61 percent of Americans owned stocks, marking a significant rise from the 56 percent and 55 percent recorded in 2021 and 2020, respectively.
Still, according to Axios, the U.S. boasts a considerably higher share of households invested in equities, compared to other major advanced economies like the UK, France, Germany and Canada.
The richest have always dominated stocks
Stock market booms have historically benefited the already wealthy the most. A 2020 study attributes this phenomenon to asset allocation differences. Wealthier U.S. households tend to heavily invest in equities, while middle-class families typically prioritize housing as their primary asset, leaving them with less exposure to potential stock market windfalls.
Gallup's survey also finds that stock ownership is strongly correlated with household income, formal education, age, marital status and race.
Wealthy households and college graduates are far more likely to own shares than those with lower incomes and less education. Families with a head of household aged at the peak period of someone's working life, around 45-54, tend to own more stocks than those whose heads are older.
In 2023, while 84 percent of adults in households earning $100,000 or more and nearly 80 percent of college graduates owned stocks, the figure plummeted to a mere 29 percent for those earning less than $40,000.
"Stock market booms primarily boost the wealth of households at the top of the wealth distribution, as their portfolios are dominated by listed and unlisted business equity," wrote three academics in a 2020 article published in the Journal of Political Economy.
Despite the surge in stock trading by Americans with extra time and stimulus money during the pandemic, it didn't significantly shift ownership away from the wealthiest. Even when retail investors faced significant setbacks in the 2022 bear market, prompting many to withdraw from the stock market.
This trend coincided with the 2021 viral stock surge, when retail investors sent shares of GameStop, AMC, and Bed, Bath & Beyond skyrocketing.
The bottom half of households own just $0.3 trillion in stocks compared to the top one percent's staggering $16 trillion. This contrasts sharply with real estate, where the bottom 50 percent hold $4.8 trillion, while the top one percent still own a significant share at $6 trillion.
Over the past decade, the S&P 500 surged 155 percent, with a 24 percent jump in the past year alone. This surge was fueled by easing inflation and hopes for Federal Reserve rate cuts in 2024. The tech-heavy Nasdaq outperformed even further, soaring a spectacular 250 percent.
This resilient performance underscores the market's capacity for recovery and potential for long-term wealth creation, even amid temporary turbulence, which is beneficial to those who hold the most stocks.