Economists say Americans have more money in stocks 2025-2026
New York – Americans now hold more wealth in stocks than at any previous time. However, while the market’s rise has boosted their portfolios, investors are also more vulnerable than ever to a potential market downturn.
investments – including mutual funds and retirement accounts – climbed to a record 45% of U.S. households’ financial assets in the second quarter.According to Federal Reserve data, direct and indirect stock investments – including mutual funds and retirement accounts – climbed to a record 45% of U.S. households’ financial assets
Americans’ Personal Finances
The surge in stock ownership is sparking concerns that a market downturn could significantly impact Americans’ personal finances-particularly at a time when the labor market shows signs of weakness and inflation remains persistent.
Several factors have contributed to this milestone: record-breaking stock market highs have increased the value of investments, more Americans are directly buying into the market, and retirement accounts such as 401(k)s, which rely on stock investments, have grown steadily in popularity over the past few decades.
While record stock market highs can be positive – allowing more Americans, especially long-term investors, to share in corporate growth – the picture isn’t entirely rosy. With so much household wealth now tied to equities, the stock market carries greater influence over the broader economy, for better or worse, noted Jeffrey Roach, chief economist at LPL Financial.
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“The effects of a stock market surge or a sharp downturn are far more significant for the overall economy today than they were just a decade ago,” said Jeffrey Roach.
Americans’ stock ownership has now exceeded levels seen in the late 1990s, just before the dot-com bubble burst, according to John Higgins, chief markets economist at Capital Economics.
This trend should raise concerns, even if today’s strong stock market continues climbing for a time on the back of AI-driven optimism,” Higgins cautioned in a client note.
Boosting Major Market
“Our outlook projects that the S&P 500 will continue to climb this year and into next,” Higgins noted. “However, the unusually high concentration of wealth in equities remains a warning sign that deserves close attention.”
Since its low on April 8, the S&P 500 has soared by 33%. Year-to-date, the index is up 13% and has already set 28 new record highs in 2025. Much of this momentum is being powered by the AI boom. Tech giants such as Nvidia (NVDA) have surged in value, boosting major market indexes like the S&P 500, which are heavily weighted by company market capitalizations .
The “Magnificent Seven”
tech giants – Alphabet (GOOG), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia, and Tesla (TSLA) – have driven about 41% of the S&P 500’s gains this year, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
While investors are seeing strong returns, the S&P 500’s growing concentration poses risks. With the Magnificent Seven now making up 34% of the index’s total market value, much of the market’s performance is tied to the success of just a handful of massive companies.
It’s not only American households reaching record stock ownership levels; foreign investors’ share of U.S. equities also climbed to an all-time high in the second quarter, Federal Reserve data show .
Historical trends suggest that when stock ownership reaches record levels, the likelihood of a downturn and weaker-than-average returns rises, explained Rob Anderson, U.S. sector strategist at Ned Davis Research.
“Investors shouldn’t count on the same scale of gains we’ve witnessed over the past decade,” Anderson cautioned. “Looking ahead, the next 10 years will likely bring a slowdown in returns.
Stocks and the economy
Even as the S&P 500 hovers near record highs, worries are growing about the rise of a “K-shaped economy,” where wealthy Americans continue to build greater wealth while lower-income households face ongoing financial struggles or fall further behind.
This divide stems partly from a stagnant job market – where most Americans earn the majority of their income – contrasted with a booming stock market, which is the primary source of wealth growth for higher-income households.
Individuals with substantial investments in the stock market feel they are doing exceptionally well,” said Michael Green, chief strategist at Simplify Asset Management. “By contrast, those who rely primarily on wages from employment as their main asset are experiencing far greater financial strain in today’s economy.
These dynamics are also distorting economic data,
making the broader outlook appear healthier than what many Americans actually experience. The surging stock market has boosted the net worth of wealthy households, fueling their spending and, in turn, driving overall economic growth, explained Jeffrey Roach of LPL Financial.
Recent data underscores the divide: the top 10% of earners – those making over $353,000 a year – were responsible for more than 49% of consumer spending in the second quarter, the highest share since records began in 1989, according to Mark Zandi, chief economist at Moody’s Analytics.
Beneath the surface, however,
the economy looks more fragile. Lower-income Americans are feeling growing financial pressure, and a potential market downturn could cause wealthy households – whose spending has been sustaining growth – to pull back.
When so much wealth is tied to equities, the stock market takes on a larger role in driving the economy,” explained Kevin Gordon, senior investment strategist at Charles Schwab. He noted that while market gains often boost consumer spending, a downturn can just as easily trigger the opposite effect.
“There’s a heightened risk that a prolonged market downturn could drag down household spending and erode confidence, especially among higher-income households,” said Kevin Gordon.
