At the same time, while the Gallup data and the Fed’s survey data show declining stock ownership since the peaks in 2000 and 2007, Americans still own far more stock than they did in the late eighties and early nineties when equity investing was just becoming more widespread.
In addition, when you look just at the first decade of the millennium, equity holdings appear more static. Despite two market crashes during that period, the share of investors holding stocks barely cracked.
So, what’s behind the longer-term trend toward more equity ownership as well as the static stock holding levels during the aughts?
- Strategic asset allocation frameworks, which form the core of modern wealth management, generally call for at least some exposure to stocks, except in the most conservative portfolios.
- Historically low interest rates make government bonds appear much more expensive than stocks, also implying a lower discount rate for stocks and thereby supporting prices.
- Investors looking to save for – and generate income during – retirement may see stocks as a necessary investment in a low-yield world.
The upshot is that the longer-term shift toward equities coupled with the more recent caution among investors could actually be good news for markets.
U.S. equities are clearly more fully valued these days, but they’re not in a bubble. Though many Americans today remain cautious and unwilling to increase their equity holdings, the fact that more U.S. investors haven’t lost faith in stocks suggests that there is further upside potential for equity markets, assuming continued economic expansion, modest earnings gains and even normalization of Fed policy. As such, I continue to expect that global stocks can move higher this year, and I prefer them to cash and bonds.
If Americans’ ownership of stocks were nearing a prior peak, I might be concerned. But with that not the case, my concern is that more Americans aren’t participating in today’s rally.