On Friday the U.S. stock market hit another all-time high! The rising stock market is leading to articles in places like the WSJ and CNBC that suggest a booming stock market is good for holiday sales. Unfortunately for stores, restaurants and online retailers, no matter what the stock market does there will not be much impact on their sales because of one simple reason.
Relatively few people in the USA directly own stocks. Every three years the Federal Reserve surveys thousands of American families about their finances. The effort is called the Survey of Consumer Finances or SCF. The latest SCF data, which come from 2013, show that just 18% of all US families directly own stocks or stock mutual funds. That means when the market goes up, 82% of all US families don’t care. This relatively low figure means the rise or fall of the market has no immediate impact on the average American’s financial situation since they do not have a stake in the market that they can cash out and use to buy holiday gifts.
The numbers look even worse when you eliminate people who have small amounts of money invested in the stock market. People with $1000 invested in the market only get an extra $100 to spend when the market rises by 10%, which is roughly what markets have done this year. If we look at people who directly own at least $10,000 of stocks or stock mutual funds, the percentage of US families falls to slightly more than 12%. This means when the market goes up or down about seven out of every eight families don’t care because it does not impact them. Increasing the threshold to $25,000 drops the percentage of US families holding stocks or stock mutual funds to just 10%.
It is important to note that many people who don’t directly own stocks are impacted by the market’s performance. Pensions and money stored in retirement accounts are impacted by the market so retirees’ income is affected. However, changes in future retirement income typically don’t impact spending today on holiday gifts. Also some people have options in company stock, but while this may be worth a lot in the future, people cannot spend the money on holiday gifts today.
What all this means is that the next time you hear that the stock market set a new record, know that somewhere between 1o% and 20% of Americans are really happy and could increase their holiday spending . The other 80% to 90% are just not directly affected by this particular piece of good news.