The richest Americans are more reliant on the stock market than ever. That's a risk
HS 02/10/2025
The richest Americans are more reliant on the stock market for their wealth than they’ve just about ever been before. Stocks now account for a large share of wealth for U.S. households, according to Michael Pearce, deputy chief U.S. economist at Oxford Economics. Equities that were directly held and in mutual funds accounted for roughly 2.42 times household disposable income in May 2025, the firm found in data going back to 1951. That’s ballooned from just 1.51 times household income as recently as 2000, at the top of the dot-com bubble in stocks. The statistic is even more extraordinary when you stack it up against real estate holdings, the traditional driver of household spending in wealthy households. In May, stock holdings also overtook real estate, which stood at 2.36 times household disposable income, which has only happened at prior market tops such as the dot-com boom or just before Covid, Oxford Economics data showed. The data skews toward the most well-to-do Americans, given that stock ownership is highly concentrated among the wealthy. The top 1% of households by income own 38.6% of the stock market, while the next 19% owns 48.3%. The bottom 80% of households? They own just 13.1% of the total household holdings of stocks. That reliance is important for both Wall Street and the broader economy. On the one hand, the well-heeled consumer has propped up both, helping to send the stock market to all-time highs and hold up the U.S. economy. On the other, it’s made the market and the economy vulnerable. “If consumer spending activity in the economy is increasingly reliant on a smaller share of the population, a smaller share of the economy, then it’s more exposed to downside risks,” said Gregory Daco, chief economist at EY-Parthenon. Exceptional consumer Part of the reason the stock market has outperformed this year has to do with the consumer, who accounts for 70% of the U.S. economy and has continued to spend in spite of a trade war, escalating overseas conflict, threats to Federal Reserve independence, higher inflation and a softening labor market. But aggregate consumer spending masks schisms below the surface. The top 10% of earners, those making more than $250,000 a year, account for roughly half of all consumer spending — a record high of 49.7% in the second quarter, according to Moody’s Analytics. Wealthy Americans have had a banner year already. CNBC’s Robert Frank reported that the top 10% of U.S. households saw their wealth grow by a record $5 trillion in the second quarter, mainly driven by stocks, while the bottom 50% added $150 billion. The top 1%? They added $23.3 trillion. That means high-income consumers wield an unusual amount of influence over the stock market. The rich pump money into the economy, allowing the stock market to shrug off any signs of underlying weakness. Then equities climb, and the stock market is underpinned by what seems like a limitless confidence in the future outlook. Meanwhile, spending by low-income consumers is deteriorating, hurt by unaffordable housing and a jobs market, the main driver of income and spending, that’s showing signs of weakening. ‘Wealth bubble’ That has led to an almost self-fulfilling prophecy for the stock market. Instead of the market serving as a predictive measure of future economic conditions, instead it’s starting to determine what those conditions are today. Doug Ramsey, investment chief at Leuthold Group in Minneapolis, said that the economy would have slipped into a recession in the aftermath of the April 2nd tariff announcement, were it not for the stock market rebound. But that also means the reverse could be true. If stocks and real estate have surged in value, giving the rich added wealth, the biggest risk to consumer confidence would be a pullback in either one. Marta Norton, chief investment strategist at Empower Investments, said that’s exactly what she’s watching. “If there’s a housing correction and a [stock] market correction at the same time, that would really impact the wealth effect, and you could really see the high income consumer behave differently,” Norton said. That’s “one of the causes that could cause the consumer to fall apart and have an impact on the economy,” she said. Or the stock market can just continue to climb a wall of worry, propping up spending and the economy along the way. — CNBC’s Gabriel Cortes contributed to this report.
