A steady decline in the New York Stock Exchange (NYSE) since the start of the year has erased more than $9 trillion in investors’ wealth, CNBC reported on Wednesday, citing Federal Reserve data. The decline is expected to continue and has possibly already reached $10 trillion.
The data shows Americans’ holdings of corporate equities and mutual fund shares have declined from a January high of $42 trillion to about $33 trillion as of the end of the second quarter on June 30. However, those numbers are nearly three months out of date, and with the continued decline of stock values since July, experts expect the losses could total between $9.5 trillion and $10 trillion.
For perspective, $10 trillion is 43% of the US gross domestic product (GDP), and larger than the economies of every country on the planet except for the US and China.
Mark Zandi, chief economist of Moody’s Analytics, told CNBC that “the loss of stock wealth suffered to date, if sustained, will be a small, but meaningful headwind to consumer spending and economic growth in coming months.”
The staggering loss of wealth is especially poignant, as Oxfam reported that the wealth of the world’s 10-richest billionaires doubled in the two-plus years of the COVID-19 pandemic, while 573 new billionaires were created in that time. At the same time, another 160 million people were pushed into extreme poverty.
“We expect 263 million people to sink into extreme poverty this year, at a rate of one million every 33 hours, as soaring inflation has added a cost-of-living crisis on top of COVID-19,” Oxfam said in May.
The Dow Jones Industrial Average (DJIA), a stock index that commonly serves as a stand-in for the status of the NYSE as a whole, has lost nearly one-fifth of its value since its January 4 high of 36,799.65. The performance of the US economy has largely followed the same track, with a Department of Commerce report in July revealing two consecutive quarters of negative economic growth. Despite this, the Biden administration has resisted calling the situation a recession for political reasons, since the Democratic Party faces a tough fight going into the November 2022 midterm elections.
Record-level inflation and the Federal Reserve’s response to it have also helped to dampen economic performance. The central bank has pledged to continue strong and steady increases in interest rates in an attempt to discourage new investment, slow down the velocity of money, and halt the depreciation of the dollar’s value. However, an April study by the Economic Policy Institute found that corporate profits accounted for 54% of inflation in the United States in the last two years, meaning the problem is price speculation, not overeager lenders.
The Fed’s Summary of Economic Projections last week showed the unemployment rate is expected to rise from its current 3.7% to 4.4% by next year, while US GDP growth is forecast to be just 0.2% for 2022.