Economists say the rising stock market is giving an added boost to consumer spending through what’s known as the “wealth effect.”
Economists say the rising stock market is giving an added boost to consumer spending through what's known as the"wealth effect."
The total net worth of the top 1%, defined by the Fed as those with wealth over $11 million, increased by $2 trillion in the fourth quarter. All of the gains came from their stock holdings. The value of corporate equities and mutual fund shares held by the top 1% surged to $19.7 trillion from $17.65 trillion the previous quarter.While their real-estate values went up slightly, the value of their privately held businesses declined — essentially canceling out all other gains outside of stocks.
Economists say the rising stock market is giving an added 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 spending and taking more risk."The wealth effect from surging stock prices is a powerful tailwind to consumer confidence, spending and broader economic growth," said Mark Zandi, chief economist of Moody's Analytics.
Economists say a rising stock market brings outsized benefits to the wealthy, mainly boosting the high-end of the consumer and spending markets. The wealth of middle-class and lower-income Americans depends more on wages and home values than stocks.
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