The share of stocks in household financial wealth is at a 70-year high

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On August 16, 2021, tourists line up to take photos in front of the Charging Bull statue in New York’s Financial District.

Tayfun Coskun | Anadolu Agency | Getty Images

The overall wealth of American households has never been higher. This is mainly due to the rise in the stock market, which accounts for a larger share of this boom than ever before.

In fact, according to Bank of America data, as of the second quarter of 2021, equity now accounts for about half of the US$109.2 trillion in financial assets owned by households. In addition to stocks, financial assets also include bonds, cash, certificates of deposit and bank deposits.

Bank of America stated that the equity share of assets is the highest point in 70 years.

In the second quarter, overall household net assets jumped to US$141.7 trillion. This was due to the continued rise of the stock market during the same period and the company’s stock value increased by US$3.5 trillion. According to data from the Federal Reserve, including non-profit organizations, the equity share of net assets is 41.5%.

Although this news is good news for individuals who hold stocks, if the fate of the market changes, the specter of risk-taking will cause people to worry. Wall Street witnessed the end of the longest bull market in history at the beginning of 2020, and then quickly recovered and set a record high in the second half of 2021.

Mitchell Goldberg, President of ClientFirst Strategy, said: “Where the money goes, the money will grow.” “As the value of the stock continues to rise, they will continue to put the money there. They will continue to put the money in until there is a better place to come. Until it is stored.”

The S&P 500 Index rose by more than 15% in 2021 Friendly fiscal and monetary policy And the strong growth of corporate earnings.

An important part of the policy background is record low interest rates and large amounts of funds from the Federal Reserve, as well as large-scale fiscal stimulus from Congress.

With the Federal Reserve Make the first sound about tightening And Washington politicians Strive for more spendingGoldberg wanted to know what would happen if market-friendly policies started to improve.

“People’s wealth depends on two things, stocks and houses, and they are more or less tied to interest rates,” he said. “There are many policies that have pushed up the value of these assets. What will happen when these policies disappear? This is the $64 trillion problem.”

Fed officials said they might Start to reduce the pace of monthly asset purchases By the end of this year. Nevertheless, it seems that there is still a long way to go to raise interest rates. Philadelphia Fed Chairman Patrick Harker confirmed on Friday that the Fed is unlikely to start raising interest rates before the end of 2022 or early 2023.

Michael Hartnett, Bank of America’s chief investment strategist, noted on Friday that customers “sold stocks in the past 5 weeks (moderately).” The bank’s sentiment indicators have gone from being almost bullish enough to trigger a reverse “sell To be more cautious.

Nonetheless, investors have poured in $34.5 billion invested in U.S. equity mutual funds and ETFs According to Morningstar, in the past 12 months alone, this shows that the appetite for stocks is still great.

Goldberg stated that he is cautious in this environment and advised his old customers to slightly reduce their holdings and start accumulating cash in a potentially more challenging environment.

“Everyone who invests today invests in the same way, based on falling interest rates, globalization, a good supply and demand chain, and low inflation,” he said. “Those are huge macroeconomic cycles, and now it seems that we are seeing the opposite. Although we have experienced these changes, it will cause a lot of volatility, a lot of dangers, and a lot of opportunities.”

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