The Federal Reserve’s latest data reveals that the wealth of the top 1% reached a historic high of $44.6 trillion by the end of the fourth quarter, buoyed by a year-end stock rally that boosted their investment portfolios.
Defined as individuals with wealth exceeding $11 million, the total net worth of the top 1% surged by $2 trillion in the fourth quarter, primarily driven by gains in their stock holdings.
The value of corporate equities and mutual fund shares owned by this group increased to $19.7 trillion from $17.65 trillion in the previous quarter.
While their real estate holdings saw a slight uptick, the value of their privately held businesses declined, offsetting gains in other asset classes outside of stocks.
This quarterly increase marks the continuation of an unprecedented wealth surge that began in 2020 amidst the Covid-19 pandemic market upswing.
Since then, the wealth of the top 1% has grown by nearly $15 trillion, representing a 49% increase. Middle-class Americans have also experienced a rising tide of wealth, with the middle 50% to 90% seeing a 50% increase in their wealth.
Economists attribute the rising stock market to a phenomenon known as the “wealth effect,” which bolsters consumer confidence and spending as investors witness their stock holdings appreciate.
Mark Zandi, chief economist of Moody’s Analytics, underscores the significance of this effect on broader economic growth.
However, the report also underscores the concentration of stock ownership among the wealthiest Americans.
This concentration of stock ownership disproportionately benefits the wealthy, as their consumer spending is less dependent on stock market gains compared to wages and home values.
Liz Ann Sonders, chief investment strategist at Charles Schwab, notes that while stocks represent a growing share of assets for the top 1%, their impact on consumer spending may be limited due to lower spending propensity among the wealthy.
Although the S&P 500 has already posted a 10% gain this year, indicating a further increase in the wealth of the upper echelon, inequality levels have reverted to pre-pandemic levels after a slight decline in 2021 and 2022.
