The market had been volatile for months before it finally took a turn to the downside. America’s wealth is now at risk due to the plummeting of the stock market.
The Federal Reserve Bank’s data on Thursday revealed that the net worth of households and non-profit organizations dropped in Q1, from $0.5 trillion to just under $149.3 trillion dollars. This is a notable turnaround compared with gains started in mid-2020 when house prices and equities rose quite steeply.
The stock market movement early this year reflects the decline, losing $3 trillion from the value of directly and indirectly held corporate equities, pushing the holdings to a total value of $43.6 trillion.
The market had its worst quarterly performance in over five years. The Dow Jones Industrial Average and S&P 500 dipped by 5%, while the Nasdaq Composite intensified a plunge at 9%, making it one of most alarming periods for equity markets since 2020 when the COVID-19 pandemic occurred.
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While the COVID-19 pandemic is surely to blame, it’s not the sole factor to the declining market. The high oil prices have also caused people’s disposable income to grow less, which in turn leads them into debt more easily than before because they need gas for work or transportation. Inflation and the Federal Reserve’s interest rate hikes also added to the market’s decline, along with the Russian invasion.
The Fed pointed out that a high rate of personal savings played an important role in the decline. Additionally, real estate values rose $1.7 trillion leading up to this point, which may have had some effect as well.
The ratio of household net worth to disposable income is near its record high, and it continues to be above the pre-pandemic level from 2019.
The Federal Reserve reported that household debt grew by 8.3%, an indication of the strong growth seen within home mortgages and consumer credit.
Home prices continue to rise, and people are borrowing more than ever before in order to keep up. Mortgage debt increased by 8.6% revealing that many Americans have been taking out additional loans on their credit cards as well as auto lending, jumping by 8.7%.
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Reference:
Stock Market Among Other Factors to a Wealth Decline in Early 2022
