If you’re concerned that households, by far the largest owners of the US equity market by cohort, might sell their stocks, driving additional downside for equities, don’t be. Because the rich own all the stocks, and all the cash too, so if anything, households will probably be buyers, especially given rising cash allocations.
“Some investors worry that the combination of a higher cost of living, rising bond yields and poor trailing equity returns may force household capitulation in the equity market,” Goldman’s David Kostin wrote, in a new note. “At first glance, investor worries appear to be warranted,” he said, noting that generally speaking, peaks in equity allocations can be a harbinger of subpar returns over the ensuing 10 years.
For Goldman, though, the prospect of household equity selling isn’t “a primary concern,” or at least not right now. Kostin’s rationale was straightforward. Stocks, he wrote, are “overwhelmingly owned by the wealthiest cohort of Americans” and those Americans, by virtue of being wealthy, are “largely insulated from the impact of higher inflation.”
He called the breakdown of equity ownership by income cohort “astounding,” which it is. But the evolution of that breakdown is what’s most astonishing. The annotations in the figure (below) should be alarming to 99% of the country, and perhaps to the other 1% too, to the extent social stability is a prerequisite for the preservation of the system which is perpetuating their fortunes.
Sometimes, I think I’m the only person in America who can see this or who understands why it matters.
To be sure, tales of the 1%’s growing share of all the things a modern capitalist economy has to offer are ad nauseam talking points that feature heavily in campaign trail rhetoric. Such stories and statistics are the cornerstone of any good Bernie Sanders stump speech, for example.
But due, in part anyway, to the bottom 90%’s (understandable) reluctance to feel sorry for the 90th to 99th percentiles, the most critical chapter of the story never gets told: It’s not just that the rich are getting richer. In some cases, the rich are actually getting relatively poorer, while a vanishingly small number of households and individuals absorb everything.
Goldman’s Kostin cited the share of the corporate equity market held by the top 10%. But all of that cohort’s share gains are attributable to the growing dominance of the top 1% — and then some. The figure (below) shows that during the post-financial crisis equity market boom, the 90th to 99th percentiles actually lost share of the US stock market.
Needless to say, the middle class lost share too. So did lower-income cohorts.
So, on a relative basis, only the richest 1% of the country benefited from the post-GFC boom in stocks.
The figure (below) makes the point more clearly. It shows the change in ownership share of the US corporate equity market since Lehman by income cohort versus the S&P 500’s gain over the same period. (It’s basis points to percentage points, but that apples-to-oranges measurement was the easiest way to construct the chart for a variety of reasons.)
Again: On a relative basis, almost no one is benefitting from equity market gains.
This is mirrored in data showing the breakdown of checking account balances and physical cash ownership in America documented last week in “The Sad, Sad Story Of $3 Trillion In Pandemic Savings.” The top 1%’s share of readily available cash jumped almost 11 percentage points over the pandemic period. As of March 31, 2022, that income cohort controlled almost a third of the nation’s cash.
In the same note cited above, Goldman’s Kostin referenced the top 10% in the savings discussion too, noting that those households together account for $12 trillion of the $18 trillion in cash held by all households. “Given that wealthy households have historically maintained a high allocation to equities, we expect some of this cash will be used to buy equities in the coming quarters,” he wrote. JPMorgan made a similar point a few days previous.
There are two takeaways from the above, one strictly related to the outlook for equity flows in a challenging macro environment for lower- and middle-income households, another related to a trend which, in my judgment anyway, isn’t conducive to societal cohesion. I’ll take each in turn:
- Most stocks are concentrated in the hands of the wealthiest households, which tend to spend less of their disposable income on the goods and services for which prices are rising the fastest in a high inflation regime. Those households also control a disproportionate share of the country’s cash and liquid savings, including the lion’s share (68%) of the $3.26 trillion in “excess” savings accumulated over the course of the pandemic. As such, they’re more likely to be buyers of stocks going forward than sellers, with the caveat that there are, of course, historical instances of large selling by households (e.g., the 1980s and 2007/2008). That’s bullish or, at the least, not bearish.
- On a relative basis, gains in US stocks are benefitting almost no one in the country. The top 1% is taking share from the rest of society over time, and that drift is perpetuating itself. Crucially — and this can’t be emphasized enough — this dynamic will eventually render income cohorts meaningless. Currently, it still makes sense to talk about the “top 1%,” but even that exclusive category will succumb over time if steps aren’t taken to arrest this perpetual motion machine. We’re on a trajectory that will eventually see a literal handful of people controlling the entirety of America’s wealth. I’ve said this before, and I’ll reiterate it here: That isn’t a political statement. I mean this in the most literal sense possible. This is conceptually akin to climate change. It’s mostly imperceptible on a day-to-day basis, but if it’s allowed to continue, we’ll look up two centuries from now and discover that three-dozen individual people own 99.9% of everything.