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Wall Street record high belies widening gap between investor haves and have-nots

Scott Tong Aug 24, 2020
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The New York Stock Exchange in May. Stock wealth has become concentrated among fewer people in recent decades. Johannes Eisele/AFP via Getty Images
COVID-19

Wall Street record high belies widening gap between investor haves and have-nots

Scott Tong Aug 24, 2020
Heard on:
The New York Stock Exchange in May. Stock wealth has become concentrated among fewer people in recent decades. Johannes Eisele/AFP via Getty Images
HTML EMBED:
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It has been the best of times for the S&P 500, as the stock index hit its highest level again Monday. But for many Americans who find themselves laid off, furloughed or just squeaking by, this pandemic recession is the worst of times.

This raises the question: Who actually benefits when Wall Street sets a record?

Three decades ago, the wealthiest 10% of Americans owned 79% of the stocks and mutual funds in the market. Now, they own 87%, according to the Federal Reserve Bank of St. Louis.

Economist Edward Wolff, who studies income and wealth distribution at New York University, said many middle-class families have been left out of market gains because their money tends to be locked up in their homes.

“Since middle-class incomes have been pretty stagnant the last 20 years or so, once people pay for their home, they don’t really have much money left to buy other assets,” Wolff said.

Despite efforts to broaden stock ownership for the middle class, including 401(k) savings accounts offered by employers, “the amounts of money invested are still pretty small,” Wolff said.

The statistical divide in stock holdings has widened since the Great Recession. During market drops, the wealthy have stayed in while many others sold. Middle-class investors have bailed out as volatility made it hard for many to sleep at night, said Yosef Bonaparte, associate professor of finance at the University of Colorado Denver.

His example: himself.

“In March, when the market was falling apart, I had to go on a different bed and sleep,” Bonaparte said. “At 2 a.m. I woke up sweating and cold. Stock market volatility, it’s not easy.”

At times, bull markets can help all Americans, assuming companies generate healthy earnings, create jobs and share wealth with employees, said Joseph Minarik, economist at the Committee for Economic Development of the Conference Board.

But in this pandemic, Minarik said, many lower-income earners — say, in retail — haven’t been able to work due to pandemic restrictions. By contrast, many higher-salary workers can do their jobs from home and keep investing.

“At this moment, there is a substantial dissonance and a painful dissonance between what’s going on in the stock market and what’s going on on Main Street,” Minarik said.

By the way, in the last three decades, the stock market has grown faster than the economy, according to a new working paper from the National Bureau of Economic Research.

COVID-19 Economy FAQs

What’s the outlook for vaccine supply?

Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.

How has the pandemic changed scientific research?

Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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