CNBC: The wealth of America's richest has hit a new record, thanks to a rally in the stock market

The wealth of the richest 1% of Americans reached a record $44.6 trillion at the end of the fourth quarter of last year, thanks to the growth of the stock market, according to the latest data published by the Federal Reserve, writes CNBC.

In the last three months of 2023, the total net worth of the richest 1 percent of Americans, the category that includes those with more than $11 million, increased by $2 trillion. All earnings came from stock holdings. The value of direct stock and mutual fund holdings of the wealthiest Americans rose to $19.7 trillion from $17.65 trillion in the previous quarter, according to the source.

According to CNBC, while the value of real estate holdings rose slightly, the value of private businesses fell, virtually canceling out all other gains outside of stocks. The development in the fourth quarter of last year represents a new stage of an unprecedented growth that began in 2020 with the rise of the stock market after the shock of Covid-19.

From 2020 to the end of last year, the wealth of the richest 1% of Americans increased by almost $15 trillion, or 49%. Also, the wealth of Americans who are part of the middle class increased by about 50%, writes CNBC.

Economists say that the rise of the stock market gives an additional boost to consumer spending, a phenomenon called the "wealth effect". Basically, when consumers and investors see the prices of the stocks they own rising, they spend more and take more risk.

"The wealth effect from rising stock prices strongly boosts consumer confidence, spending and broader economic growth," said Mark Zandi, chief economist at Moody's Analytics, according to CNBC. "Of course this highlights a certain vulnerability of the economy, should the stock market falter. That's not the most likely scenario, but it's a scenario given that the stock looks overvalued."

The report also highlights the concentration of ownership in the United States. According to the Fed, the top 10 percent of Americans own 87 percent of individual stock and mutual fund holdings. The top 1% have half of individual stock holdings.

Economists say the appreciation of the stock market brings extraordinary benefits to the wealthy, mainly stimulating the premium segments in terms of spending. Middle-class and low-income Americans depend more on wages and home values than stock holdings, according to CNBC. "Households in the top third of the income distribution and owning the most shares account for about two-thirds of consumer spending," Zandi said.

Liz Ann Sonders, chief investment strategist at Charles Schwab, says the share of stock holdings in the wealth of the wealthiest 1 percent of Americans is growing. At the end of 2023, stocks accounted for 37.8% of the total share of the wealthiest Americans' household assets, up from a recent low of 36.5%.

However, she says that because the rich don't have to spend much of their earnings - a phenomenon known as the marginal propensity to consume - the wealth added by the stock ownership of the top 1 percent of Americans may not have a substantial impact on consumption economy.

She noted that the confidence of consumers earning more than $125,000 a year has been in a "secular decline" since 2017, according to the Conference Board.

The S&P 500 is already up 10% this year, so the wealth of America's wealthiest has likely surpassed the record it hit late last year. While wealth inequality fell slightly in 2021 and 2022 as wages and house prices rose, the gap has now returned to pre-pandemic levels.

At the end of last year, the wealth of the richest 1% of Americans represented 30% of the wealth of the United States, while the wealth of the top 10% equaled 67% of the entire wealth of the country, writes CNBC.