Stocks make the rich richer. Everyone else, not so much
Add Axios as your preferred source to
see more of our stories on Google.
A booming stock market is definitely making the rich richer, but it won't do much to lift prospects for most everyday Americans or the broader economy, concludes RSM's chief economist Joe Brusuelas in an intriguing new post.
The big picture: Rising stock prices help a very small slice of folks at the top, and the rich don't spend much of those gains — which would at least drive overall economic growth.
By the numbers: The top 20% of income earners in the U.S. hold about 87% of stocks and mutual funds — that amounts to $55 trillion as of June, up from $45 trillion a year ago, per RSM's analysis of data from the Federal Reserve's Distributional Financial Accounts overview.
- The bottom 80% holds about $8 trillion and has seen less of a gain in dollars — up from $7 trillion last year.
How it works: Rising stock prices make people feel richer, and that so-called "wealth effect" does lead to more spending — but not as much spending as you might think, Brusuelas writes.
- That's because most of the gains go to the highest earners, and they don't increase their spending enough to make a big impact on the economy.
- In a paper identifying this phenomenon last year, researchers at the Federal Reserve said that it helps explain the weak recovery in spending following the financial crisis.
Between the lines: Even as the booming stock market leaves most folks behind, lawmakers use it as an economic indicator — but it has its limits.
- The market has often served as President Trump's barometer for the economy. He recently explained that his push to resolve the Iran conflict was driven by what he saw happening to stocks.
- "All I know is every time we talked about the possibility of peace, the stock market shot up like a rocket ship," Trump said last week.
The bottom line: Take this as your latest reminder that the stock market is not the economy.
