“The ‘aunties’ gathered in brokerage offices during the day, watched the stock price charts change, ate their packed lunch and placed stock orders.”
“One auntie … said … ‘You make [a little money] in the stock market, it means you can have a nice meal today.’”
Such was the experience of certain older investors in China’s 2015 bubble, as recounted by William Quinn and John D. Turner in Boom and Bust.
The expansion of “marketability” is a requisite feature of financial mania, according to Quinn and Turner. And that expansion often finds its way to the aforementioned “aunties” – ordinary individuals far removed from the halls of high finance.
All of which raises a question: How are American “aunties” faring in today’s AI-crazed equity markets?
An answer might be found in the Fed’s Distributional Financial Accounts (DFA), from which we can derive and plot the percentage of low-income household net worth that is linked to equities. We can add context by overlaying Robert Shiller’s Cyclically Adjusted Price-to-Earnings (CAPE) ratio.
TL;DR? When the gray line goes up, stocks are more expensive. And when the orange line goes up, the wealth of our lowest-income peers becomes more dependent on the value of those stocks.
In the throes of the dot-com bubble, Shiller’s CAPE peaked at 44.2, a level we’re approaching today. Equity valuations are historically high – not news.
But in 1999, less than 11% of the net worth of our lowest-income households was tied to the stock market. Today? Nearly 20%.
Society’s most vulnerable are more exposed to the stock market than at any point in the DFA’s 37-year history.
There are innumerable reasons you might shrug this off. The democratization of wealth creation is generally good. An elevated CAPE does not a correction force. The trading behavior of America’s lowest-income quintile doesn’t match that of the investors described in Boom and Bust, as far as I know.
All fair. But if we’re destined to fall back to Earth, a reasonable question remains: What will become of our “aunties” on the return trip?