The Washington PostDemocracy Dies in Darkness

For roughly half of Americans, the stock market’s record highs don’t help at all

A screen above the trading floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average, Wednesday, Oct. 18, 2017. (AP Photo/Richard Drew)

The Dow Jones industrial average is poised to hit a record high of 25,000 points this week, with the Nasdaq and S&P 500 indexes similarly reaching new heights. The indexes are widely used as a kind of shorthand for American economic health, appearing everywhere from nightly newscasts to President Trump's tweets.

But for many, perhaps most, American households, those indexes measure an economy far removed from their own daily bread-and-butter concerns. One figure from a recent working paper by New York University economist Edward Wolff illustrates that point: Fewer than 14 percent of American households directly own stock in any company.

Even when you consider indirect ownership via 401(k) retirement accounts and similar vehicles, fewer than half of American households own any stock at all.

Up until the early 2000s, stock ownership had been on the rise. From 1989 to 2001, the percentage of households directly owning stock rose from 13.1 to 21.3 percent, while the percent owning any stock [including indirect ownership via 401(k)s] increased from 31.7 to 51.9 percent, per Wolff's analysis.

But since then, stock ownership has declined. The share of households directly owning stock in 2016 (13.9 percent) is similar to the share in the early 90s. The total rate of stock ownership, including indirect holdings, has fallen too but by a slighter amount, owing to the continued popularity of 401(k) retirement plans.

It's worth noting that Wolff's total stock ownership number is a couple of percentage points lower than the 51.9 percent reported by the Federal Reserve's latest Survey of Consumer Finances because of differences in the calculation of indirect stock ownership. But the overall reported trends remain the same.

Like income and wealth, stock ownership is heavily concentrated in the uppermost echelons of the economy. The bottom 60 percent of households combined own just 1.8 percent of American stock. The top 1 percent, by contrast, owns over 40 percent of the country's stock, up from 34 percent in 2001.

Looked at another way, the top 20 percent of wealthy households (those with an average net worth of $3 million) own well over 90 percent of the American stock market.

The factors driving inequality and concentration in the stock market are behind the parallel trends seen in American income and wealth: disparities in education, as well as deliberate efforts by U.S. policymakers to raise taxes on the poor and decrease them for the rich.

For the top 20 percent of households, the day-to-day movements of the Dow Jones reflect real changes in their net worth and financial health. Big shifts in the market might mean the difference between retiring today and retiring five years from now, or between buying that bungalow right on the beach and buying the one a few blocks away.

But for many of the other 80 percent of American families, who collectively own less than 7 percent of the stock market even when you factor in their retirement accounts, the Dow and the S&P 500 are little more than numeric abstractions.