When the Stock Market and Economy Seem Disconnected

[question everything]

(snip)

The percentage of Americans who own stock, either directly or through retirement or mutual funds, is falling. It most recently stood at about 55%, according to an April Gallup poll, down from a high of 67% in 2002. The S&P 500, the benchmark U.S. stock index, has surged more than 50% since bottoming in March and is back at record levels, largely thanks to the unprecedented stimulus programs enacted by the Federal Reserve and Congress.

Stock ownership is increasingly concentrated among a sliver of the population. The top 10% of Americans by wealth owned 87% of all stock outstanding in the first quarter, according to data from the Federal Reserve. That share has grown over the past decade, from 82.4% in 2009. The stock market has surged over that period, with the S&P 500 more than quadrupling from its low during the financial crisis in March 2009.

Although the stock market has erased its losses suffered during the pandemic, the economy appears to be telling a different story. It contracted at the sharpest rate on record in the second quarter, and the unemployment rate remained above 10% in July, after reaching nearly 15% in April. Government aid—particularly a program that gave the unemployed an extra $600 a week on top of other jobless benefits—helped ease some of their pain, at least initially.

About 27 million workers received the payments, which allowed them to keep up with mortgage and utility bills and other financial obligations. The program expired in July and hasn’t yet been revived as Republicans and Democrats in Congress continue to haggle over the terms of a new deal.

(snip)

Economists credit those payments with much of the recent pickup in retail sales and caution that consumer spending is expected to moderate in August because many Americans will have less disposable income. Consumer spending reflects more than two-thirds of U.S. economic output. Meanwhile, even many families with savings don’t have enough money to provide real security during the pandemic. The median savings account balance for families headed by an individual between 56 and 61 years old is just $21,000, according to the Economic Policy Institute. That balance is even lower among younger families.

More..

https://www.wsj.com/articles/when-the-stock-market-and-economy-seem-disconnected-11598002220 (subscription)

[jimfields33]

1. Nobody is going to keep more then an emergency fund in a savings account

Why do they use that as a guide to whose saving? No wonder why it looks like nobody is saving. 21,000 in a savings account is too much! The banks are using that money and giving pennies to use it.

[progree]

3. Pls see post #2 - the EPI defines "retirement savings account" to include 401k's and IRAs /nt

Last edited Sat Aug 22, 2020, 08:23 PM - Edit history (1)

[question everything]

4. Should have included the first few paragraphs

Amber Biesecker has been out of work since March when her freelance editing projects dried up at the start of the coronavirus pandemic. Ms. Biesecker, a 33-year-old married mother of two in Winter Park, Fla., says she applied twice for unemployment benefits but was denied because her clients are out of state. Her income, which previously averaged about $30,000 a year, shriveled to zero.

“We’re in a huge lurch,” she said, adding that her family has no savings, 401(k) retirement plan or other investments. “We have no economic security. We have no security for our health.”

Ms. Biesecker’s frustrations are increasingly common because fewer Americans, buffeted by the economic fallout from coronavirus, have a stake in one thing that’s going up: the stock market.

[progree]

5. Being a freelancer, she's probably not eligible for state unemployment benefits

but she should be eligible for the PUA - Pandemic Unemployment Assistance program, a federal program designed for gig and contract workers. As well as the $600/week additional. That her clients were out-of-state should not make a difference to the PUA program.

Living in Florida, I can believe that the state unemployment office would not have bothered to inform her of the PUA. (Another example of how the continuing claims of all programs, 28.1 million for the week ending August 1 (the latest info available) probably misses a lot of people https://www.democraticunderground.com/10142564798#post6 .

As for the $21,000 median statistic, that comes from the EPI report ( https://www.epi.org/publication/the-state-of-american-retirement-savings/
), and I think it is restricted to 401k and IRAs and similar (e.g. 403(b)'s, Keogh's). I have read quite a bit of it as far as looking for what "retirement savings" and what "retirement savings account" means, and I see no mention of any kind of regular taxable accounts.

Edited to add: This is off-topic but I think it's hilarious -- I found this on the Grovelbot Board. (Not directed at you or anyone in this thread. Just funny).

[progree]

2. EPI report - I looked it up, haven't studied it:

https://www.epi.org/publication/the-state-of-american-retirement-savings/

Chart 5 - shows the $21,000.
Says "Retirement account savings include funds in 401(k)-style defined contribution plans and in IRAs"

The reason the median is so low is that almost half don't have any retirement savings accounts. (The median is the 50 percentile point).

Some people have their equity holdings in regular taxable accounts because of the zero or low capital gains and qualified dividend tax rates. Whereas withdrawals from 401k and IRAs are taxed at the ordinary income tax rates (unless they are Roths). Regular taxable accounts don't seem to be included.

From the OP:

The median savings account balance for families headed by an individual between 56 and 61 years old is just $21,000, according to the Economic Policy Institute. That balance is even lower among younger families.