By Jules Rimmer

Equity wealth is encouraging households to spend more of their salaries than at any time since the global financial crisis

Equities' share of net worth for all households has risen steadily

Though salaries remain the most important factor driving consumption, the equity market's wealth effect is becoming increasingly influential, doubling its impact on spending since 1990. While this supports economic activity, if and when the rally cools, households will be obliged to save more.

Equity wealth has moved to center stage

These were the findings of a note exploring the wealth effect published Monday by Montreal-based investment research firm BCA. For economists, the wealth effect suggested that consumption is based on household wealth. BCA turned to standard economic models that estimated a $1 improvement in equity prices results in a 3% increase in consumption, compared with a $1 increase in the value of a home, which translates into just 10 cents of extra spending.

The author of the BCA note, Doug Peta, said that in the early 1980s, the value of equity portfolios and mutual fund holdings was far less than half of households' disposable income. In 2026, that number is closer to 250%. Much of this is due to the returns for the S&P 500. Since 1980, equity markets have risen much faster and more sustained than earlier in the 20th century.

Moreover, these gains and their effect have been "turbocharged" by the last cycle since the start of the COVID-19 pandemic in 2020. The extent of this growth means consumption has grown despite a reduction in real disposable income over the last year or so - which would have previously implied a recession.

Peta said that, since 2025, the appreciation of the stock market allowed the U.S. to dodge a recession because "households with stock market winnings could set aside less of their paychecks that they might otherwise to plug the gap between real consumption and real disposable income."

The role of equity wealth has expanded in the last 35 years

Importantly, Peta also noted that equities account for a greater share of household net worth across all wealth brackets. "Participation in the equity market has broadened significantly," he noted. The upshot is that equity wealth is increasingly available to fund spending among households with higher marginal propensities to consume.

One final point from Peta: "Appreciation of shares in companies at the center of the AI investment boom and infrastructure build out has been the main channel by which AI has boosted the economy, bringing us back to the wealth effect." If you own shares in the likes of Nvidia (NVDA), Advanced Micro Devices (AMD), Broadcom (AVGO) and so on, the wealth effect has been extremely positive."

-Jules Rimmer

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