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Economy in Brief

Stock Market Rise Rebuilt Wealth
by Tom Moeller July 19, 2004

Through the end of last week the S&P 500 Index of stock prices muddled along up just 1.4% from yearend levels. Recent weakness, however, follows strong gains through most of 2003. Year to year stock prices are up 11.6%.

Gains in stock prices raised the value of the household sector's financial assets. Through 1Q04 the market value of corporate equities held by the household sector rose 27.9% versus 1Q03. Despite the rise in interest rates that would have eroded the value of fixed income assets, the value of all mutual fund shares held by the household sector rose 39.0%.

The rise in the value of these financial assets greatly improved the net worth of the household sector to $45.2 trillion versus $39.6 trillion in 1Q03. A 10.1% rise in the value of real estate holdings aided the improvement. (Financial assets are more than twice the value of real estate assets for the household sector.)

Liabilities owed by the sector were up 10.9% y/y in 1Q due mostly to a 12.5% rise in home mortgage obligations.

"Why Do Stock Prices React to the Fed?" from the Federal Reserve Bank of St. Louis is available here.

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