Despite this week’s losses, stocks are still having a good year – in fact, they’ve been having a good five years. During the bull market of the last five years, U.S. stocks, as measured by the S&P 500, have generated total returns of 233%. So, you would think most investors would be embracing equities.
But while stocks represent a larger share of household financial assets than they did five years ago, the share of U.S. adults who own stocks remains stuck at multi-year lows.
At the beginning of September, the Federal Reserve (Fed) published its 2013 edition of the Survey of Consumer Finances. Even as the S&P 500 was closing in on 1,600 last year, well above its March 2009 lows, the report revealed that the share of U.S. households holding stocks actually declined to 48.8% in 2013 from a high of 53.2% in 2007, as the chart below shows.
The Share of U.S. Households Holding Stocks
Source: Fed Survey of Consumer Finances
Similarly, Gallup surveys also show a decline in investor stock holdings. According tothese polls, during the decade before the financial crisis, roughly 60% of U.S. adults held stocks in their financial portfolios. But since the bull market kicked in five years ago, that ownership share has averaged around 55% – among the lowest ownership percentages since the survey began in 1998.
This shouldn’t come as much of a surprise. Factors that explain the reticence to embrace stocks include:
- Two stock market routs in a decade have altered investors’ return and volatility assumptions for the asset class, as well as their preference for risky assets. This is especially true among 30- to 50-year-old investors who haven’t had the benefit of experiencing more stable market conditions during their investing lifetimes.
- The Fed’s bloated balance sheet and unusually accommodative monetary policy have created a sense among some investors that the subdued expansion may be somewhat artificial.
- High government debt levels as a share of U.S. annual economic output, combined with concerns over long-term entitlements and U.S. political dysfunction, have led investors to focus on potential cracks in the economy’s foundation.
- Geopolitical risk and worries about the economic outlook overseas have convinced otherwise optimistic investors to take a more guarded stance.
- Stubbornly high levels of structural unemployment and wide gaps in incomes limit the universe of potential savers who can own stocks.
To be sure, the Fed’s Survey of Consumer Finances data is from last year. To the extent that equities have continued to move higher since then, it’s possible that stock ownership has gone up since the end of 2013.