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Stock Market Finds Traction with New Audience, but Who Really Benefits from the Boom?

Stock Market Finds Traction with New Audience, but Who Really Benefits from the Boom?

Published on Thu May 27 2021 06:43:42 GMT+0000 (Coordinated Universal Time)

We can all agree that 2020 was a year full of surprises. One of the most shocking was the massive gains in the stock market in the face of a global pandemic, historic unemployment and economic uncertainty.


We can all agree that 2020 was a year full of surprises. One of the most shocking was the massive gains in the stock market in the face of a global pandemic, historic unemployment and economic uncertainty.

However, what's less surprising is that the concentration of wealth was still generated by the upper class. As of the market close on Friday, February 19, the country's 664 billionaires now have a combined wealth of $4.3 trillion, up from just under $3 trillion on March 18, 2020. These findings are based on reported Forbes data compiled by Americans for Tax Fairness and the Institute for Policy Studies. The bulk of this wealth gain was due to capital gains through the stock market. In January, the New York Times reported that the top 1% of Americans controlled about 38 percent of the value of financial accounts holding stocks. When they widened the focus to include the top 10 percent, they found 84 percent of all of Wall Street portfolios' value.

Though these wealth disparities were widening before the pandemic, 2020 saw the market continuously hit historic gains. Indexes like NASDAQ Composite returned over 42.58 percent in 2020. With that said, more Americans own stocks than ever. About 53 percent of U.S. households held stocks in 2019, according to the Federal Reserve's Survey of Consumer Finances, a snapshot of U.S. household financial health that is updated every three years. The figure includes indirect ownership through employment retirement accounts, such as 401(k) plans as well as participation through investment apps like Robinhood.  Two researchers from the Swiss Finance Institute, Philippe van der Beck and Coralie Jaunin, went so far as to claim that trading on Robinhood alone added one percent to the overall U.S. stock market during the second quarter of 2020. This came after they added 0.6 percent to U.S. stocks' first-quarter results. This is significant as the app's clientele is mostly young first-time investors.

Unfortunately, despite this positive trend up in stock ownership, the truth is that the average American household does not have enough invested in the stock market to gain from market fluctuations. As noted before, 84 percent of the value of stocks is held by the top 10 percent of earners. The wealth generated by the 47 percent of U.S. families who don't own any stock is even more jarring. Many of these individuals were negatively impacted by unemployment and overall income instability and saw household wealth decline during the pandemic.

These two phenomenons (1) tremendous wealth building for top earners and (2) wealth degeneration for those at the bottom, are causing what economists call a K shape recovery. With the rich getting richer and the poor getting poorer.


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