This article was posted on Thursday, Aug 01, 2019

Previously, I reported that household debt rose to a record high in the first quarter, but also that household balance sheets improved to the best level in years, according to the Federal Reserve. Well, new Fed data came out with some specific numbers.

In the fourth quarter of last year, household wealth declined at an annual rate of 3.7%, thanks in large part to the decline in the stock markets, which were rattled by Fed interest rate hikes and trade war threats. But as you know, stocks rebounded strongly in the first quarter as the Fed paused interest rate hikes and before President Trump threatened trade tariffs on both China and Mexico.

Household Wealth Rose at a Record Pace in the First Quarter

According to the latest Fed “Flow of Funds” report, in the first quarter, wealth of households and non-profit groups increased by $4.69 trillion, or a 4.5% annual rate, to $108.6 trillion. The Fed said it was the largest quarterly increase in household wealth since records have been kept.

The increase in household wealth was once again attributed largely to the rise in the stock markets in the first quarter. Here are some highlights from the Fed’s report on the rise in household wealth:

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  • Wealth rebounded in the first quarter along with U.S. stocks, which rallied by the most in a quarter since 2009. The increase was fueled by the Fed signaling it would hold off on raising interest rates further and signs the trade war was cooling. Of course, President Trump has since reignited trade tensions, now threatening trade tariffs on not only China but also Mexico.
  • The value of equities directly and indirectly held by households and nonprofit groups increased $3.23 trillion in the first quarter from the prior quarter, while the value of real estate rose by $387 billion.
  • Corporate debt growth soared by 7.6% in the first quarter, the fastest pace in three years and more than double the prior quarter. Fed Chair Jerome Powell said last month: “We take the risks from business debt seriously but think that the financial system appears strong enough to handle potential losses.”
  • Non-mortgage consumer credit increased at a 4.3% pace in the first quarter, slower than the prior two quarters but still signaling Americans are willing to borrow as interest rates remain relatively low.
  • Federal government debt rose at an 8.6% annual rate in the first quarter, the second-fastest of Trump’s tenure, after 2.5% in the previous quarter. State and local government debt saw a fifth-straight contraction, falling 0.8%.

The bottom line is household wealth on average rose at the fastest rate since records have been kept in the first quarter to a record $108.6 trillion, buoyed by the stock market which also rallied to record highs in the first three months of this year. But here’s something very interesting…

84% of US Stocks Are Owned by the Wealthiest 10%

Household wealth has been rising for a very long time. Not only that, the rate of increase in household wealth has been accelerating more and more rapidly since the mid-1970s. The only significant decline occurred during the Great Recession of late-2007 to early 2009 – when the stock market declined over 50%.

For as long as I have been in the investment business (over 30 years), the pundits largely attribute increases in household wealth to a rising stock market. And that’s a big part of it for sure. But here’s an interesting fact: Most American households own no stocks at all.

That’s right: A whopping 84% of all stocks owned by Americans belong to the wealthiest 10% of households according to a recent study by New York University. And that includes everyone’s stakes in pension plans, 401(k)’s and individual retirement accounts, as well as trust funds, mutual funds and college savings programs like 529 plans. Let that sink in.

Over 50% of American Households Own No Stocks at All

Both Republicans and Democrats have promoted the idea that a rising stock market broadly lifts Americans’ fortunes. Yet for the vast majority of Americans, fluctuations in the stock market have relatively little or no effect on their wealth, or well-being, for that matter.

That’s because over 50% of American households own no stocks at all, according to data from the Fed and other sources.

There was a serious move to increase stock ownership more broadly in the 1980s and 1990s, with the advent of individual retirement accounts, but the stock market busts of 2001 and 2007-09 scared off many middle-class investors who have never returned.

As a result, the day-to-day impact of stock market gyrations on most people’s overall wealth is minimal. As noted above, roughly half of all U.S. households don’t have a cent invested in stocks. Even among those that do invest in stocks, the average household had less than $5,000 invested based on a study in 2016. For many families, it is far less.

The bottom line is, the rise in stock prices has little to no effect on household wealth for over 50% of American households. So, what can explain the increase in household wealth for those families that own no stocks? It’s the rise in the values of their homes (for those who own their homes). Home prices have risen significantly for decades. I wish the pundits would point this out when they attribute rising household wealth to the stock markets.

Gary D. Halbert is the president and chairman of Halbert Wealth Management, Inc. His Forecasts & Trends Weekly E-Letter may be obtained free of charge by subscribing at