Who owns US stocks? Explaining the rise in inequality during the pandemic

Last year featured a devastating public health crisis, an imploding job market, a heavy dose of political tumult and — surprisingly — a roaring stock market.

Add it all up, and a major consequence was an expansion of inequality in a nation where economic disparity was already on the rise.

It boils down to which groups were hurt most by the sinking parts of the economy and which ones benefited most from the rising share prices.

In the brick-and-mortar part of the U.S. economy, lower-wage workers were disproportionately affected by the job losses. At the same time, Americans benefited from gains in share prices: both people who own individual stocks in brokerage accounts and those who own stocks in personal retirement accounts, like mutual fund IRAs, or in those offered by employers, such as 401(k)s.

Yet that’s where even more disparity kicked in, an analysis of data from the Federal Reserve’s 2019 Survey of Consumer Finances shows. Although the distribution of income is unequal in the United States, ownership of financial assets in general and stocks in particular is even more so.

The survey, conducted every three years, collects exhaustively detailed financial information from a sample of American “economic units” — we’ll call them families — including income, the types of assets they own and what those assets are worth.

An analysis of this data shows that in 2019, the top 1% of Americans in wealth controlled about 38% of the value of financial accounts holding stocks. Widen the focus to include the top 10%, and you’ve found 84% of all of Wall Street portfolios’ value.

Using the broadest definition of Wall Street involvement, which includes everything from workplace 401(k)s to personal IRAs, mutual funds and pension holdings, just over half of U.S. families have at least one financial account tied to the market, while just 1 in 6 report direct ownership of stock shares. Wealthier people are far more likely to have these accounts than middle-class families, who in turn are far more likely to be in the market than working-class or poor families.

And the wealthy, not surprisingly, are more likely to have larger portfolios.

A paper-napkin calculation that assumes all market participants averaged last year’s 16% gain in the S&P 500 would mean that American families fattened their portfolios by $4 trillion overall last year. But $3.4 trillion of that would have gone to just 10% of families, leaving the other 90% to split $600 billion.

Beyond the gap in holdings between the very rich and the merely affluent, there is also a gap between the affluent and the middle class. Only half of households in the 40th to 49th percentiles of net worth have any brokerage or retirement accounts that include stocks. But among households in the 80th to 89th percentiles, 84% are invested in at least one holding.

Moreover, the median portfolio size for households in that middle group was $13,000 in 2019 and so would have gained about $2,000 in last year’s market. The typical family in the wealthier group had $170,000 in the market and would have gained about $27,000 with a similar portfolio.

These wealth differences are far starker than the inequality we usually talk about on the income ladder.

Fourteen percent of individual income flowed to the 1% of wealthiest U.S. households in 2019, the analysis found. But that 14-to-1 relationship was nothing compared with other categories.

In addition to controlling 38% of the value of stock accounts, the top 1% control 18% of equity in residential real estate, 24% of the cash held in liquid bank accounts and 51% of the value of accounts that directly hold individual stocks.

Edward N. Wolff, an economist at NYU, measured the economic disparity on a scale of 0 to 1 (the Gini coefficient). He says the income reported by households in the 2019 survey rates 0.57 on the inequality scale, slightly higher than it was 20 years ago. On the same scale, inequality for net worth rates a 0.87, up from 0.83 in the 2001 survey.

The disparities go beyond wealth groupings. The analysis of the Survey of Consumer Finances showed that Black Americans, who already account for a disproportionately low share of the nation’s income, fare even worse when it comes to assets.

They made up 14% of the survey population but accounted for just 8% of 2019 income, 5% of the money in liquid assets and 2% of Wall Street holdings. Even if you remove from the calculus the top 1% — a group that is disproportionately white and controls a hugely disproportionate share of all categories — the African American share of Wall Street equity rises to just 3%.

Among households that rank in the middle class, the disparity is smaller but still there: African Americans made up 13% of that group in the survey, earned 11% of income and held 9% of Wall Street equities.

It’s not unheard-of for Wall Street to treat gloomy developments as good news. A mass layoff can be seen as both a devastating human event, and a cost-cutting move to boost next quarter’s profits. Generally speaking, though, a bad economy means a bad market — which is why the present situation seems so peculiar.

Last year, a sharp one-month market decline was followed by a steep rebound, even as the job market — and everything else in the world — remained deeply uncertain.

By comparison, share prices tumbled for about two years around the early 2000s recession. In 2008, the S&P 500 went into a 16-month slump at the dawn of that recession.

The disparities in wealth in the United States were already growing heading into the pandemic in 2020. Thirty years ago, the top 5% of Americans controlled just over half of the nation’s wealth. By last year, that figure was approaching two-thirds of wealth, and based on how the economy went in 2020, it wouldn’t be surprising if that threshold was breached.