Falling stock markets have wiped out $9 trillion from US households' wealth.
At the end of the second quarter, Americans' holdings of stock and mutual fund shares were $33 trillion, down from $42 trillion at the beginning of the year. Market experts say the current wealth losses from financial markets could be as high as $10 trillion.
According to economists, the drops could start rippling through the economy, adding pressure to Americans' balance sheets and hurting spending, borrowing and investing. The losses could reduce real GDP growth by 0.2 percentage points over the next year.
If sustained, the loss of stock wealth will be a small, but meaningful, drag on consumer spending and economic growth.
Wealthy people have an outsize share of stocks. The top 10% of Americans have lost over $8 trillion in stock market wealth this year. The top 1% has lost a lot of money. The bottom half of the population has lost a lot of stock wealth.
Record wealth creation from soaring stocks has been reversed by the losses. America's stock wealth increased from $22 trillion in 2020 to $42 trillion at the end of 2011. According to the Federal Reserve, the wealthiest 10% of Americans own almost all of their individual stock holdings.
With stocks declining and those at the top bearing most of the losses, wealth inequality has fallen. At the end of the second quarter, the top 1% owned less household wealth than they did at the beginning of the year. The percentage of wealth held by the top 10% fell.
Gains from rising housing prices have been more than offset by stock market losses. America's housing wealth increased in the first half of the year. About a third of the stock market's losses is attributed to the gain. Home prices have begun to decline in many markets.
The drop in stock wealth is larger than the $6 trillion in stock losses during the first quarter of 2020. This year's stock losses are the largest ever on a dollar basis, even though stock markets have seen larger drops.
How much the stock decline will affect consumer spending is a big question. There aren't many signs that affluent consumers are cutting their spending. The negative wealth effect is a theory that says wealth declines lead to spending declines.
Consumer spending could be affected by stock wealth being lost in the U.S. He said that the stock-wealth effect is smaller since the wealthy own such a large share of stocks.
They won't feel compelled to save more since their savings cushion is so large.
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