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The Retired Investor: The U.S. Stock Market Is Just Too Big To Fail
U.S. public equities are worth $68.9 trillion. U.S. Gross Domestic Product for 2026 is forecast to be $32.4 trillion. Can you guess which is the tail and which is the dog in terms of importance?
The above numbers are understated. Financial markets overall could be worth much more than that, but let's just count U.S. deposits and money market funds ($20.3 trillion), directly and indirectly held equity shares ($74 trillion), debt securities ($12.2 trillion), and defined pension plan entitlements ($16.7 trillion); that amounts to $123.2 trillion.
Add household and nonprofit sector holdings, and that figure is more than $195.9 trillion. Did you know America's overall wealth jumped by $12.8 trillion in the second quarter of 2026? That was the largest quarterly increase on record. Stock holdings and other financial assets accounted for $11 trillion of that gain. By now, I think you are getting the picture. The stock market is the engine of economic growth.
We can credit the record boom in AI stocks for much of those gains. Something else has changed. The wealth effect you may be experiencing has become an important driver of spending and consumption for those of us who hold stocks. But not everyone benefits. The top 1 percent by wealth hold 51 percent of stocks and funds, while the bottom 50 percent hold less than 1 percent.
Take, for example, higher-income Baby Boomers. They are making net withdrawals from their investment accounts at double the rate they did seven years ago. I know many such couples. They are spending more of their investment gains not only to enjoy life, but in many cases to pay the bills. Others see their portfolio totals climb year after year, and it makes them feel wealthier, so they spend more.
But it is not only Baby Boomers. A study of 20 million JPMorgan Chase account holders indicates that withdrawals have increased across all ages and income groups. Economic research from Evercore ISI argues that as much as half of all the consumption growth is now being driven by these wealth effects.
Under the current administration, the number of Americans participating in the stock market through retirement savings accounts and now children opening Trump Accounts (60 million) is growing faster than ever before. It is no accident that the president has said many times that he believes the stock market, not the polls, is a better measure of his job standing.
That still leaves a goodly share of low-income households with little if any exposure to the markets. As the brick wall of Social Security funding draws ever closer, I believe the government is working to develop an alternative to Social Security. They are doing so by encouraging more Americans to participate in the stock and bond retirement funds through various incentives.
Right now, the U.S. equity market represents 44 percent of global equity capitalization, so it is not only Americans that depends on the stock market. In the second quarter, foreign investors purchased an additional $426 billion of the nearly $1 trillion in overall foreign money flowing into the U.S.
Does this mean that the U.S. stock market has become too big to fail? The short answer is yes.
At this point, equity markets worldwide, both private and public, are worth somewhere between $200-$300 trillion or more. That is far greater than the world's forecasted GDP of $125 trillion. Because the U.S. holds the largest share of that wealth, a large decline in the equity market here would have a debilitating effect on global growth. Make no mistake. If the U.S. market falls, global markets will too.
Throughout my career in the stock market, I've always seen the market as a reflection of the economy. Stocks went up or down based on the growth rate of an individual company's fundamentals, for example. The bigger picture for stocks hung on the overall prospects for economic growth. That is still true, but only goes so far.
The Financial Crisis (FC) of 2008-2009 taught us that the stock market plays a central role in wealth creation, consumer spending, and economic stability. Another prolonged bear market, driven by a steep decline in the stock market, would surely trigger a recession, high unemployment, and the end of AI investment. I shudder to think of what that would do to consumer confidence and the younger generation's opinion of the government.
If, or should I say when, such a decline were to happen, I suspect the federal government in this age of state capitalism would intervene, and its actions would dwarf those in past financial crises. After all, you can't convince non-savers to buy stocks in their IRA for retirement if they experience a decline like that of the FC. It required more than five years after that decline to restore many Baby Boomer savers' confidence in the markets.
If the hope is that government-sponsored retirement savings plans will provide the alternative to Social Security, then savers would need to know the government has their back in downturns. The groundwork is being laid. This administration is already buying stocks of various companies and intends to buy more. A U.S. sovereign wealth fund is "being studied" as you read this.
In response to a severe decline, I would expect a wholesale increase in federal ownership of the stock market (7 percent to 8 percent), as well as a huge quantitative easing program numbering in the multi-trillions of dollars. If all this sounds like something out of left field, consider the times we live in.
The president has warned that if the GOP doesn't win, expect recession. Rhetoric, hyperbole, or truth? What does he know that we don't? He has also said, in a recent Times Magazine interview concerning our $40 trillion in debt, "I don't want to tell you what those means are, but you can pay off the debt through other means." He went on to say, "Certain levels of inflation will also pay off that debt very rapidly. Very rapidly."
In closing, I want to advise readers that this will be my last column until the third week in November. Yes, I am taking some time off, three weeks to be exact. It is my first real vacation since 2020. They say absence makes the heart grow fonder. It must be true because I already miss you.
Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.
Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of OPI, Inc. or a solicitation to become a client of OPI. The reader should not assume that any strategies or specific investments discussed are employed, bought, sold, or held by OPI. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct. Investments in securities are not insured, protected, or guaranteed and may result in loss of income and/or principal. This communication may include opinions and forward-looking statements, and we can give no assurance that such beliefs and expectations will prove to be correct.
