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A version of this article first appeared in CNBC's Inside Wealth newsletter with Robert Frank, a weekly guide for high-net-worth investors and consumers. Register to receive future issues, directly to your inbox.
The wealth of the top 1% hit a record $44.6 trillion at the end of the fourth quarter, as a year-end stock rally boosted their portfolios, according to new data from the Federal Reserve.
The total net worth of the richest 1%, defined by the Federal Reserve as those with wealth greater than $11 million, increased by $2 trillion in the fourth quarter. All profits came from his stock holdings. The value of corporate stocks and mutual fund shares held by the top 1% rose to $19.7 trillion from $17.65 trillion the previous quarter.
While the values of his real estate increased slightly, the value of his private businesses decreased, essentially canceling out all other gains outside of stocks.
The quarterly gain marked the latest addition to an unprecedented wealth boom that began in 2020 with the Covid-19 pandemic market surge. Since 2020, the wealth of the top 1% has increased by nearly $15 trillion, or 49%. Middle-class Americans have also seen a rising tide of wealth: between 50% and 90% of middle Americans saw their wealth increase by 50%.
Economists say the rising stock market is giving an additional boost to consumer spending through what's known as the “wealth effect.” When consumers and investors see their stock holdings soar, they feel safer spending and taking more risks.
“The wealth effect of rising stock prices is a powerful tailwind for consumer confidence, spending and broader economic growth,” said Mark Zandi, chief economist at Moody's Analytics. “Of course, this highlights the vulnerability of the economy if the stock market were to falter. This is not the most likely scenario, but it is a scenario given that stocks appear very (over)valued.”
However, the latest report also highlights how there continues to be high stock ownership in the U.S. According to the Federal Reserve report, 10% of Americans own 87% of individually owned stocks and mutual funds. The top 1% own half of all individually owned stocks.
Economists say a rising stock market brings enormous benefits to the wealthy, primarily boosting the high end of the consumer and spending markets. The wealth of middle-class and low-income Americans depends more on wages and home values than on stocks.
“Those households in the top third of the income distribution and who own the most stocks account for about two-thirds of consumer spending,” Zandi said.
Liz Ann Sonders, chief investment strategist at Carlos Schwab, such stocks represent an increasing proportion of the assets of the top 1%. Stocks accounted for 37.8% of the total asset share of households in the top 1% at the end of 2023, up from a recent low of 36.5%.
However, because the rich do not need to spend as much of their earnings – a phenomenon known as the marginal propensity to consume – Sonders said the additional accumulated wealth for the 1% may not have a substantial impact on the consumer economy.
He noted that consumer confidence among those earning more than $125,000 a year has been in “secular decline” since 2017, according to the Conference Board.
“While the rise in share prices could be related to increased confidence, it does not necessarily point to increased spending at the top end,” he said.
With the S&P 500 Already up 10% this year, top-tier wealth is likely to have already broken the record by the end of 2023. While inequality declined slightly in 2021 and 2022, as wages rose and house prices increased, the wealth gap has increased since then. returned to pre-pandemic levels.
The top 1% accounted for 30% of the country's wealth at the end of the fourth quarter, while the top 10% accounted for 67% of all wealth.
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