THE most anticipated recession in recent US history might not be as imminent as once thought, so historically low unemployment rate sticks around the way it was. CEOs seem to have understood this, with a huge dive into mentions of the impending economic downturn in recent earnings calls. But Wall Street is not Main Street, and the stock market has taken a historical shots last year, and the strategists are warning Don’t be fooled by the market gains in the first half of 2023, largely driven by the “black swan eventof ChatGPT and generative AI But some investors are warning of a different types of recession it has to do with how much of Main Street has actually invested in stocks: a recession in the asset class.
An asset class recession essentially means that the economy as a whole would not contract – and unemployment might not rise much from its recent 50-year low – but markets and asset values would suffer a prolonged blow, and most of the pain would be concentrated on those who rely on the value of their investments in addition to or instead of their salaries. Equities in particular have been a bigger and bigger piece financial assets of US households in recent years. In fact, Americans haven’t been invested in the stock market at this rate since 2008.
Share ownership now reaches 61% of American households, the same rate as in 2008, according to a Gallup poll released on Wednesday.
Americans abruptly ditched dependence on stocks as they lost $7.4 trillion in stock wealth between July 2008 and March 2009, according to the Federal Reserve, the equivalent of each American household losing an average of $66,200.
Falling market values during the crisis likely derailed or delayed the plans of many potential new investors, Gallup found, leading to a decade of relatively low equity ownership. Between 1998 and 2008, the average shareholding rate was around 61%, while in the decade following 2009, around 54% of households on average held shares. Possession rates hit a low of 52% in 2013 and 2016.
However, shareholding rates have been rising steadily since 2020, and those who have returned to the market since then have likely caused a stir, as the value of the S&P 500 has risen more than 27% since the start of 2020.
America’s love/hate affair with stocks
But the near future might not be so bright for stock owners. A year of rising interest ratesA banking crisisand a stalemate on the US debt ceiling that could possibly causing the government to momentarily default on its debt undermined confidence in the market.
And despite a rally earlier this year that sent the S&P 500 up around 7%, some senior Wall Street analysts have warned that the brief respite could end as another bear market trap. Mike Wilson, Morgan Stanley’s chief U.S. equity strategist who correctly predicted last year’s market sell-off, warned in a note this week that various economic risks, including the debt ceiling debate, are likely to keep the bear market alive for a bit longer.
If the market soars again, it could lead to what Marc Rowan, billionaire investor and CEO of Apollo Management, a private equity firm, has called “recession out of recessionin an interview with CNBC earlier this month, a decline in asset values that does not lead to the same economic woes traditionally seen in a recession.
“Asset prices are falling,” he said. “We in the financial markets, profiting and living in a world of assets, are going to feel like we’ve had a real recession. Rates have risen – rising as much as they have, we’re going to feel it. »
Rowan was joined in his assessment by Apollo chief economist Torsten Slok, who wrote in a note last week: “The big correction during this recession will not be in the economy but in asset prices as the Fed continues to deflate the buy everything bubble created due to global easy money.”
Slok wrote that 15 years of low interest rates and money printing had created a “significant bubble” for asset prices, while the Fed’s battle to rein in inflation would likely keep investment costs high. next year as well.
“A mild economic recession with a strong asset price recession is what we call a recession without a recession,” he continued.
Admittedly, this asset class is still concentrated in already wealthy households, according to the Gallup poll, which found that stock ownership “is most strongly correlated with household income.” While 80% of Americans with household incomes over $75,000 own stocks, that share drops to about half when it comes to middle-income Americans earning between $30,000 and $74,999. , and less than a quarter of Americans earning less than $30,000 own stocks at all. .