Goldman Sachs has concluded that U.S. equity holdings now represent a larger share of net financial wealth than real estate for the first time since World War Two, marking a notable change in the asset composition of household balance sheets. In a note published on Thursday, the bank framed stock-market gains as the dominant force behind recent household wealth accumulation and as the central factor supporting a positive wealth effect on consumer spending.
The bank provided several regional and structural observations to support its assessment:
- High equity allocations in some markets - Equity allocations among households in the United States and Australasia are approaching half of financial assets. Goldman noted that these allocations are now exceeding the levels seen during the dot-com era.
- Geographic variation in exposure - Households in the U.S., Australia and Sweden show the highest exposure to equities. By contrast, households in Europe and Japan remain relatively under-invested in stocks and hold a larger proportion of their wealth in cash.
- Market performance and sector concentration - Strong gains in global equity markets since the global financial crisis, and particularly over the past three to four years, have pushed equities to a larger share of global financial assets and investor portfolios. Goldman highlighted that technology stocks make up an increasing portion of those equity holdings.
- Potential institutional reallocation - The note points to regulatory changes in Europe, including reforms affecting Dutch and German pension systems, as a potential catalyst for pension funds and insurance companies to raise their allocations to equities over time.
Goldman also sounded a note of caution: a greater household allocation to equities increases vulnerability to a sharp market correction. The bank emphasized that such vulnerability is heightened when equity valuations are elevated and macroeconomic uncertainty is elevated as well.
The analysis highlights how the balance of household wealth drivers has shifted toward publicly traded stocks, while also flagging the systemic and household-level risks that come with heavier equity exposure.