stock market drivers

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Last Updated: Friday, 23 June 2023 18:13
Published: Wednesday, 08 April 2020 14:42
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Main driver of Stock Market:

Most of the stock market is owned by people in USA via their retirement accounts (401K or IRA accounts). Some people also have personal brokerage accounts. Only about 50% of Americans have any ownership in stocks.

Very good article on fool.com showing stock ownership (All data as of 2019): https://www.fool.com/research/how-many-americans-own-stock

USA stock market is about $45T as of 2022. Number of American households is about 130M as of 2022. Of these, 50% or 65M households own stocks. Out of this 65M, 45M own stocks via retirement accounts only. Remaining 20M or so also have additional personal brokerage accounts, in which they keep stocks. In 1990's, stock ownership used to be in 30% range, and it has kept increasing with now 50% of American households owning stocks. That increase is mostly due to more American participating in retirement plans. In 1989, only 17M families had 401K accounts, while as of 2010, 50M Americans had 401K (Based on above link, at most 65M American families have retirement accounts of 2022).

  • Top 1% American households own 50% of stock market.
  • Top 10% own 90% of US stock market which amounts to $40T of stock market wealth.
  • Bottom 50% of people who own stocks own < 1% of stock market, and own less than $40K in stocks (including retirement accounts) per family. So, we may safely ignore this group as it's insignificant with such low stock ownership. So, we may say that only about 30M or so households have > $40K in stocks. 
  • Of the 20M families who own personal stocks, 50% of them have < $25K in personal brokerage account. So, we may ignore this group too, which leaves us with just 10M families who have > $25K in personal brokerage accounts, and probably > $100K in retirement accounts.

This link from another site shows the ownership which matches the one from above: https://wallethacks.com/stock-ownership-in-america

What's interesting to note from above link is that of the top 10% of earners (those making > $100K/year), 95% own stocks and their median value is $363K.

Combining the data, we see that just 7M or 5% of families own stocks > $400K (including personal + retirement accounts). This is the group that keeps getting rich and richer every day doing nothing.

Retirement Accounts: The main driver of stock market is retirement account which have nowhere else to invest in, except in stock market.

www.ici.org: gives all details of such accounts. Fact sheet(for year 2010): http://conferences.ici.org/pdf/2011_factbook.pdf

total US retirement market: $17.5T.

  1. IRAs: 49 Million households owned IRAs. IRA assets: 4.7T, share of mutual funds and securities thru brokerage a/c = 3.9T
  2. DC Plans: 401K, 403(b), 457, etc: Assets: $4.5T. 401K held $3.1T in assets, while 403(b) and 457 held $0.9T in assets.
  3. Other Plans: fed/state/local pension plans, fixed/variable annuity reserves at life inc co., Assets: $8.3T

Mutual funds accounted for $4.7T  of this 17.5T market.  60% of this (2.8T = 2.1T in domestic equities and 0.7T in foreign equities) is invested in equities.

Link: http://conferences.ici.org/pressroom/news/10_news_ebri_ici_nov

401K accounts:

An estimated 51 million American workers were using 401(k)s at year-end 2010, and assets totaled about $3 trillion. The average account balance of workers was $60,329 in 2010, compared with $58,351 in 2009. Fidelity Investments is the largest provider of 401(k) plans with almost 11.7 million participants.
On average, at year-end 2009, 60 percent of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock. Thirty-six percent were in fixed-income securities such as stable value investments and bond and money funds.

Total assets in stable value funds: According to the Investment Company Institute (ICI), total assets in 401(k) plans amounted to $2.7 trillion (www.ici.org/home/retmrkt_update.pdf) in 2006. GICs/stable value funds and money-market funds, accounting for 15 percent of the total, amounted to about $405 billion in 2006. Balanced funds, at almost 13 percent of the total, held about $348 billion in 2006.

Latest Data:

From a report from Sept, 2019 (when Total USA stock market cap was $30T), Fidelity reported that out of 30M retirement accounts, 200K of 401(K) accounts had balances of $1M or more.  On average, Contribution rate of employees was 8.8%, while employers contributed 4.6%, resulting in total contribution of 13.4%. So, basically 13% of employees income goes into 401(K). Apart from 401(K) accounts, most people also have individual retirement accounts like Roth, etc. The number of such accounts with $1M or more also hit all time high at 182,400 accounts. This is the highest number of retirement account millionaires ever. All of it is a result of strong bull market that saw S&P500 index go up 5 times from 2019 to 2019. So, basically, $200K or so from 2009 grew into $1M by 2019. The avg account balance in 401(K) was $105K, which was also all time high. It's much lower amount, since it includes young people also, who have very little in their 401(K) accounts. $1M used to be the gold standard for retiring. However, Charles schwab survey showed that $1.7M is the new number for retiring in USA. This is all assuming 10% stock market return for ever (which is a return that can only be sustained by Government's ponzi scheme).