How much do Americans Benefit from a Rosy Year of Stocks Markets

By Joyce Yu

Most Americans may not have benefited proportionally from Wall Street’s boom despite the fact that the S&P 500 Index has risen 20% since the beginning of the year and the Dow Jones Industrial Average is up 25%.

A CNN article pointed out, citing data from Pew Research Center that, only 18.7% of Americans own stocks directly. While people can share the benefits of stocks markets through ownership of 401(k) accounts, only about half of Americans participate in the employer-sponsored retirement fund. In both cases, market participation is skewed toward those with higher incomes, which means that the wealthy disproportionately benefit from surge of stocks.

While the just-passed Republican tax plan, which has been the main driver for the Wall Street, cuts taxes for most lower- and middle-income people, it is particularly generous to people with high incomes and big bank accounts, according to the CNN article.

The Tax Policy Center estimates that measures in the bill including a new 20% tax deduction for pass-through income will send 65.3% of the bill’s individual benefits to people in the top 20% of the income spectrum, with the top 1% getting a $50,000 tax cut on average in 2018. As the years go on, the value of tax breaks shifts further toward the top.

With the rosy 2017 approaching to the end, 2018 is however faced with both opportunities and uncertainties. Expectations for a strong year for the global economy in 2018 buoyed commodity prices and helped mitigate concerns over the technology sector triggered by reports of soft iPhone X demand.

While Oil prices strengthened after an attack on a crude pipeline in Libya, hitting $60 a barrel for the first time since mid-2015, the surge in copper to its highest in nearly three-and-a-half years was particularly eye-catching as the metal is seen as a proxy for global growth.

On the other hand, geopolitical risks may continue to weight down the markets. The United States announced sanctions on two North Korean officials behind their country’s ballistic missile program on Tuesday after the U.N. Security Council unanimously imposed new sanctions on North Korea last week.

“Geo-political risks have notched a little higher, supporting rates markets,” Mizuho’s head of rates Peter Chatwell told the Reuters, referring in particular to a renewal in tensions around North Korea.

“The North Korean statement that U.N. sanctions are an act of war is, as tends to be the case, an exaggeration, but nevertheless the market has no choice but to price it. Some safe haven positioning is a natural reaction,” said Chatwell.