The Stock Market Has Recovered…Who Cares?

As of the close of the equity markets today, the S&P500, a broad index of stock market performance, has recovered to pre-COVID-19 levels. This is great news for America, right?

Percentage of U.S. Households owning stocks, from https://www.nber.org/papers/w24085

We only know about the details of household stock ownership from the Survey of Consumer Finances conducted by the Federal Reserve Board every three years. The most recent survey, conducted in the fourth quarter of 2019, has yet to produce any results. What do we know from the 2016 SCF?

The picture above reproduces Figure 14 from a paper written by Edward Wolff, an economist at New York University. He shows that, sure, almost half of U.S. households own stocks of any kind. This includes your IRA and 401(k) mutual funds, if you have any, not just direct share ownership. This is the MOST GENEROUS definition of owning stock we can find. Even then, barely 50% of households have any. About two third of households hold stocks valued at less than $10,000. A full 75% hold less than $25,000 in the stock market.

I guess the good news is that this means most households didn’t lose very much when the stock market plummeted due to COVID-19. The bad news is that most households don’t benefit, or benefit immaterially, when the stock market rises.

Remember, the stock market doesn’t tell us how the economy is doing. The stock market tells us how people think the economy will do in the future.

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