A US$5 trillion 'wealth shock' is cracking Americans' nest eggs

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NEW YORK (BLOOMBERG) - Just as the United States is learning to live with the virus and spending shifts back toward pre-pandemic normal, it faces a new threat: A plunge in wealth since the start of 2022 that JPMorgan Chase & Co. estimates totals at least US$5 trillion - and could reach US$9 trillion by year-end.

So far, the richest Americans have borne the brunt, with US billionaire fortunes down almost US$800 billion since their peak amid the sharp losses in stocks, crypto and other financial assets.

But surging interest rates are also starting to rattle the housing market, where middle- and working-class families have the bulk of their wealth.

It all adds up to the sudden removal of a major prop to confidence: ever-bigger nest eggs. And it's by design. To stamp out the highest inflation in decades, the Fed needs Americans to curb their spending, even if it requires an economic slowdown to get there.

Americans' collective net worth had been climbing at a dizzying rate for the past two years, even as families and businesses contended with the ravages of Covid-19. Households piled up an extra US$38.5 trillion from early 2020 to the end of last year, bringing their collective net worth to a record US$142 trillion, the Federal Reserve estimates.

"It's painful to get back to normal after really being in a fantasy world last year," said John Norris, chief economist at Oakworth Capital Bank. "It's going to feel a lot worse than it actually is."

Since the start of the year, the S&P 500 Index is down 18 per cent, the Nasdaq 100 has lost 27 per cent and a Bloomberg index of cryptocurrencies has plunged 48 per cent.

That all amounts to "a wealth shock that is set to drag on growth in the coming year," JPMorgan economists led by Michael Feroli wrote in a note Friday.

Fed Chair Jerome Powell and his colleagues have repeatedly said they're actively aiming for such a slowdown, leaving it unlikely policy makers will move to address the Great Wealth Drop of 2022.

Billionaires were the biggest winners of 2020 and 2021. Now they're losing more than almost everyone else. The Bloomberg Billionaires Index, a daily measure ...

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