American Households to Buy $425 Billion in U.S. Stocks This Year, Driving Market Demand

Goldman Sachs strategists have emphasized that American households will continue to play a pivotal role in supporting the U.S. stock market through their growing influence on retirement savings. Led by David Kostin, the team forecasts that American households will directly purchase $425 billion worth of U.S. stocks this year, making them the second-largest source of stock market demand, trailing only corporate purchases of $6,750 billion.

The strategists noted that the "TINA" (There Is No Alternative) investment logic remains prevalent among American household retirement accounts. This term refers to the lack of alternative assets to stocks for investors. The increasing proportion of 401(k) retirement plans in overall retirement savings, along with their heightened focus on stock allocations, indicates that this type of investment is becoming significantly more important to the stock market. In 2022, the average stock allocation in retirement accounts rose from 66% in 2013 to 71%, with those in their 20s holding as much as 90% in stocks.

Over the past three months, American households have maintained a strong demand for stocks, contrasting with industry data showing below-average fund inflows. Retail investors have been buying individual stocks at a higher-than-average rate, and margin debt levels have been elevated. Goldman Sachs' trading department estimates that during this period, households have net purchased nearly $200 billion worth of stocks, indicating that they have been buying the dip in the S&P 500 index.

The benchmark index fell approximately 19% from its February high to its low point on April 8, but it has since nearly recovered all its losses, supported by demand and approaching its peak from last year. Another group of Goldman Sachs strategists, including Christian Mueller-Glissmann, noted that U.S. retail trading volumes show that investors were actively buying the dip around the early April "liberation day," but have since started to sell—though this trend has been offset by institutional buying of U.S. stocks.

Kostin wrote, "The resilience of American household demand for stocks is crucial, as they are the largest group of stockholders in the U.S." He added that households directly hold 38% of U.S. stocks, and if indirect holdings through funds are included, the proportion is even higher. Currently, Americans allocate 49% of their financial assets to stocks, the highest level in history, surpassing the previous peak of 48% in 2000. This contrasts sharply with other regions: households in the Eurozone allocate only 10% of their assets to stocks, and in Japan, the figure is just 13%.

While household demand supports the U.S. stock market, escalating conflicts in the Middle East could threaten the bull market outlook. If oil prices surge and drive up inflation, the S&P 500 index could face a risk of declining by as much as 20%.