A sense of panic has gripped U.S. stock markets with the year’s gains being completely wiped out in an October that is now on pace to be the worst since the global financial crisis. But that panic is overshadowing the fact that U.S. investors have amassed a spectacular amount of wealth in recent years, and much of it due to the strength of the bull market, according to Credit Suisse’s annual “Global Wealth Report.” The report, which comes just as some are saying the stock market’s all-time highs are behind it, traces the growth in global wealth over the 12-month period to mid-2018, noting that, “The United States again led the way with a gain of USD 6.3 trillion, mostly due to financial assets.”
US Wealth Is Soaring
|Region||Change in Total Wealth (USD)||Change in Total Wealth (%)|
|World||+ $13.96 trillion||+ 4.6%|
|North America*||+ $6.49 trillion||+ 6.5%|
|Europe||+ $4.43 trillion||+ 5.5%|
|China||+ $2.27 trillion||+ 4.6%|
|Asia-Pacific||+ $0.93 trillion||+ 1.7%|
|India||+ $0.15 trillion||+ 2.6%|
|Africa||+ $0.11 trillion||+ 4.4%|
Source: Credit Suisse; change in wealth from mid-2017 to mid-2018; *includes U.S. and Canada
What It Means
Defining wealth as net worth, or the value of financial plus real (principally housing) assets minus debt, the report notes that 2017–2018 marked the tenth year of rising wealth in the U.S., spurred on by its strengthening economy and financial markets. A big catalyst following the financial crisis was the Federal Reserve’s quantitative easing program, of which the accompanying low interest rates helped to revive the economy and contributed to higher bond and stock prices. Since then, in spite of higher interest rates, business and market conditions have improved, which the report attributes to the recent fiscal stimulus, deregulation and reduced taxes implemented by the new Trump administration.
“The United States continued its unbroken spell of wealth gains since the global financial crisis…”—Credit Suisse
But while both an improved economy and financial markets have contributed to the rise in wealth, most of that rise has been due to financial markets. The report indicates that two-thirds of the rise of household wealth in North America was due to the increase in the value of financial assets compared to just 41% worldwide. The difference illustrates the relative dependence of U.S. household wealth on the performance of financial assets, like stocks, and just how vulnerable U.S. households are to a market crash.
While the U.S. may have led the growth in wealth and is still the wealthiest nation on the planet, China is quickly catching up as “a wealth gap [between the U.S. and China] that once appeared unassailable could vanish within a generation,” the report claims. As far as the world wealth hierarchy goes, China has now clearly established itself in the number-two spot, having displaced Japan as early as 2011 in total wealth rankings.
Also noteworthy is that while the degree of wealth inequality is devastatingly large—the bottom 50% of adults own just 1% of total wealth, while the richest 10% and 1% own 85% and 47% of global wealth, respectively—the good news is that the trend of rising inequality since the financial crisis appears to be abating. Not surprisingly, the U.S. has the most members among the wealthiest 1%.
With so many high-net-worth households, big U.S. banks like Goldman Sachs and Morgan Stanley are finding new streams of revenue in specialized lending to wealthy clients, which has become a fast-growing and high-margin section of their businesses. But with so much of U.S. household wealth derived from financial assets, a market crash that decimates household balance sheets risks carrying over to those of the banks.