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The wealth of the 1% just reached a record $44 trillion

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A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for wealthy investors and consumers. Register to receive future editions, straight to your inbox.

The wealth of the top 1% hit a record $44.6 trillion at the end of the fourth quarter, as the year-end stock market rally boosted their portfolios, according to new data from the Federal Reserve.

The total net worth of the top 1%, defined by the Fed as those with wealth above $11 million, increased by $2 trillion in the fourth quarter. All the gains came from their stock holdings. The value of corporate stocks and mutual fund shares held by the top 1% jumped to $19.7 trillion, up from $17.65 trillion the previous quarter.

While the value of their real estate has increased slightly, the value of their private companies has declined, essentially canceling out all other gains outside of stocks.

The quarterly gain marks the latest addition to an unprecedented wealth boom that began in 2020 with the market surge linked to the Covid-19 pandemic. Since 2020, the wealth of the top 1% has increased by nearly $15 trillion, or 49%. Middle-class Americans also saw their wealth increase, with the top 50 to 90 percent seeing their wealth increase by 50 percent.

Economists say a rising stock market provides an extra boost to consumer spending through what’s known as the “wealth effect.” When consumers and investors see their stock holdings soar, they feel more confident in their spending and take more risks.

“The wealth effect caused by rising stock prices is a powerful tailwind for consumer confidence, spending and overall economic growth,” said Mark Zandi, chief economist at Moody’s Analytics. “Of course, this highlights a vulnerability in the economy if the stock market were to weaken. It’s not the most likely scenario, but it is a scenario given that stocks appear richly (over)valued .”

Yet the latest report also highlights how shareholder ownership remains very important in the United States. According to the Fed report, the richest 10% of Americans own 87% of individually owned stocks and mutual funds. The richest 1% own half of all individually owned stocks.

Economists say a rising stock market brings outsized benefits to the wealthy, mainly boosting the high-end segment of consumer and spending markets. The wealth of middle-class and low-income Americans depends more on wages and the value of real estate than on stocks.

“Households in the top third of the income distribution that own most of the inventory account for about two-thirds of consumer spending,” Zandi said.

Liz Ann Sonders, chief investment strategist at Charles Schwab, said stocks represent a growing share of the assets of the top 1%. Stocks accounted for 37.8% of the top 1%’s overall share of household assets at the end of 2023, up from a recent low of 36.5%.

Yet because the rich don’t need to spend as much of their earnings – a phenomenon known as the marginal propensity to consume – Sonders said additional stock market wealth for the 1% might not have a substantial impact on the consumer economy.

She noted that consumer confidence among those earning more than $125,000 a year has been in “steady decline” since 2017, according to the Conference Board.

“While rising stock prices may be linked to stronger confidence, they do not necessarily indicate increased spending in the premium segment,” she said.

With the S&P500 Already up 10% this year, it is likely that upper-echelon wealth will have already surpassed the record by the end of 2023. While inequality has fallen slightly in 2021 and 2022, as wages have risen and prices of real estate prices have soared, the wealth gap has since widened. returned to pre-pandemic levels.

The richest 1% accounted for 30% of the nation’s wealth at the end of the fourth quarter, while the richest 10% accounted for 67% of all wealth.

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