US household wealth falls by a record $6.1 trillion in 2nd quarter

US household wealth fell by a record $6.1 trillion in the second quarter to its lowest in a year as a bear market in stocks far outweighed further gains in real estate values, a Federal Reserve report showed on Friday.

Household net worth tumbled to $143.8 trillion at the end of June from $149.9 trillion at the end of March, its second consecutive quarterly decline, the Fed’s quarterly snapshot of the national balance sheet showed. Through June, Americans’ collective wealth had fallen by more than $6.2 trillion from a record $150 trillion at the end of 2021.

The net drop in wealth in the second quarter was about $30 billion larger than the previous record decline notched two years earlier, as the onset of the COVID-19 pandemic upended financial markets. That decline - in the second quarter of 2020 - still stands as the largest on a percentage basis at 5.2 per cent versus 4.1 per cent in the most recent report.

The latest fall was led by a $7.7 trillion decline in stock market values as equities slid into a bear market in the first half of the year on worries about surging inflation and the Fed’s aggressive response with interest rate increases. The equity market drop outstripped a $1.4 trillion gain in real estate values.

Total nonfinancial debt rose at a 6.5 per cent annualised rate after rising at an 8.3 per cent rate in the first quarter, the Fed data showed.

Household debt growth also slowed to a 7.4 per cent annual rate from 8.3 per cent in the first three months of the year, while business, federal, state and local government debt levels all rose.

Meanwhile US stocks rallied on Friday, with the major indexes recording their first weekly gain in four weeks as investors went on a buying spree, shrugging off concerns about the economic outlook.

The gains followed a sharp sell-off that began in mid-AugUSt, triggered by concerns about the impact of tighter monetary policies and signs of an economic slowdown in Europe and China.

Analysts said this week’s market recovery was more related to previoUS overselling as uncertainty remained high about inflation and the Federal Reserve’s aggressiveness in interest rate hikes.

“It’s not surprising we get a little bit of a bounce like we’re getting here, as a lot of this is technical,” said Jack Janasiewicz, lead portfolio strategist and portfolio manager at Natixis Investment Managers Solutions.

“I wouldn’t be shocked if we started the week off with a little bit more strength and then we sort of settle down and give back a little bit as we get ready for the CPI,” he added, looking ahead to next week.

Investors awaited AugUSt’s consumer prices (CPI) report on Tuesday for any signs that inflation may be easing. It is expected to show that prices rose at an 8.1% pace over the year in AugUSt, compared with 8.5% in July.

Wells Fargo economists expect headline inflation to log its steepest monthly decline since the peak of the pandemic in April 2020, helped by a pullback in gas prices.

All 11 major S&P sectors traded higher on Friday, with communication services, technology, energy and consumer discretionary leading the way.

Hammered since the beginning of the year over concerns about higher interest rates, high-growth stocks rose in the week.

Investors are jittery about the prospects of another outsized interest rate hike from the Federal Reserve. On Friday, Fed Governor Christopher Waller said the Fed should be aggressive with rate hikes while the economy “can take a punch,” while Kansas City Fed President Esther George said taming inflation could be a tough task. Both remarks come after Fed Chair Jerome Powell said on Thursday that the US central bank is “strongly committed” to controlling inflation.

Traders are pricing in a 90% chance of a 75 basis point rate hike at the next meeting, up from 57% a week earlier, according to CME Group’s Fedwatch Tool https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?redirect=/trading/interest-rates/fed-funds.html.

The CBOE volatility index, a gauge of investor anxiety, closed to a two-week low of 22.79 but stayed above its long-term average of about 20.

The Dow Jones IndUStrial Average rose 377.19 points, or 1.19%, to 32,151.71, the S&P 500 gained 61.18 points, or 1.53%, to 4,067.36 and the Nasdaq Composite added 250.18 points, or 2.11%, to 12,112.31. For the week, the Dow advanced 2.7%, the S&P 500 climbed 3.6% and the Nasdaq gained 4.1%. US equity funds recorded outflows of $11.5 billion in the week to Wednesday, their largest outflow in 11 weeks, Bank of America Merrill said on Friday.

Volume on US exchanges was 9.91 billion shares, compared with the 10.24 billion average for the full session over the last 20 trading days. Kroger Co jumped 7.4% after the grocer raised its annual forecast.