When the year began, Americans held $42 trillion worth of stocks in corporations and mutual funds, but new information from the Federal Reserve shows that the figure now stands at $33 trillion. Financial analysts expect another trillion dollars or so in losses.
The shock to the stock market, combined with rising interest rates and inflation, will make banks less likely to lend, households more likely to save and investors less interested in starting new projects.
Mark Zandi, chief economist of Moody’s Analytics, said the stock market’s drop will cause the American economy’s total output to decline by another 0.2%. That will make the current recession longer and deeper.
“The loss of stock wealth suffered to date, if sustained, will be a small, but meaningful headwind to consumer spending and economic growth in coming months,” Zandi said.
With the current recession and rising domestic and foreign tensions, Americans seem less committed to spending excess income and more interested in saving to hedge against inflation.
The wealthiest Americans were hit the hardest because about half of the nation does not own any stocks.
The wealthiest 10% of Americans lost 22% of their net worth, or $8 trillion, while the richest 1% accounted for $5 trillion of that loss.
To economists who have watched the largest monetary expansion in American history due to COVID-19 spending, the decline is expected and healthy. American stock wealth doubled from $22 trillion to $42 trillion during 2020 and 2021.