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Stock Ownership Dwindling
In a recent WSJ article, Paul Vigna points out stock ownership in the United States has been steadily decreasing. The percentage of Americans who own stock, has fallen from a high of 67% in 2002 to 55% in April of this year. Despite the S&P 500’s recent gains of 50% since reaching its nadir in March, most of Main Street is not benefiting from them.
“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.” This trend is a bit ironic, as government stimulus appears to have benefitted the well-off the most, as opposed to those who are most in need.
The expanded unemployment benefits of $600 per week went to 27 million workers, helping them with their financial obligations. These benefits expired at the end of July, and consumer spending is expected to register at a more modest clip for the month of August. In an environment where many have found themselves jobless, and now without expanded unemployment benefits, they are barely able to afford rent and other essentials, let alone save enough to experience the gains seen in the stock market. At this critical juncture, a failure by Congress to extend unemployment benefits may result in another correction in equity markets.
Public Equity Markets
The S&P 500 settled at 3,397.16 on Friday, notching another record close while the Nasdaq settled at 11,311.80, registering another high of its own. The Dow has shown to be the laggard of the three indices, as it does not have the benefit of much tech exposure, which is what has boosted the performance of the Nasdaq and S&P to their respective record highs.
To wit, Apple became the first US public company whose market capitalization surpassed the $2 trillion mark on Wednesday. Apple closed Friday at $498.95, elevating it to a market cap of $2.13 trillion. Right behind Apple are the likes of Amazon, Microsoft, Google, and Facebook- all of which have stood to benefit from people working and going to school from home.
Adding fuel to Apple’s meteoric rise is their announcement of a 4-for-1 stock split in which shareholders receive 3 additional shares for each share of Apple they currently own. In theory this does not change the value of the overall pie- you simply get more, thinner pie slices. But by making shares of Apple more affordable- instead of $444 per share you can now buy a share for $111- they then become more accessible for retail investors, which drives up demand for their shares, resulting in higher share prices.
Economic Data
The boom in home sales is attributable to pent-up demand from early spring, historically-low interest rates, and the cyclical nature of residential real estate, which typically sees the most activity in late summer and fall.
Those who have been considering buying a home are taking advantage of the current situation. Demand is such that, according to the National Association of Realtors (NAR ), demand is such that 68% of the houses sold in July were on the market for less than a month. Additionally, housing starts increased by 22.6% from June to July and new-home sales have also steadily increased.
As for more sobering news, weekly initial jobless claims rose by 135,000 to a seasonally-adjusted 1.1 million in the week ended August 15, according to the Labor Department.
This indicates that companies are continuing to lay off workers, and other employers have signaled they will continue to do so, including Boeing, as well as municipalities across the country as they face budget shortfalls due to cratering tax revenues. And with the expiration of the expanded unemployment benefits at the Federal level, states have been left to shoulder the burden of the $300-per-week benefit stipulated by the president’s executive order two weeks ago, adding pressure to states’ already-beleaguered finances.
Less demand for dining and restaurants and concerns about safety and lack of child care are all factors contributing to workers’ reluctance to go back to work. And even if they did, they’d be hard-pressed to find any as many businesses are seeing a fraction of their pre-pandemic revenues thanks to the ongoing pandemic.
Senate Republicans have stated no additional stimulus is needed as they believe the economy will recover through fall and winter, but at the moment, this prediction is not materializing as college campuses across the country continue to report covid-19 outbreaks and an effective treatment or vaccine is yet to become commercially available. Until then, I believe additional government stimulus will be needed to help states balance their budgets and the unemployed pay their bills, and landlords collect on their tenants’ rent. Without it, we may be in for an economic reckoning as all of these pent up factors boil over.