Black Americans' lack of participation in the stock market likely to widen post-pandemic wealth gap

Thanks to the historic stock market rebound from pandemic lows, affluent 401(k)-holders and savvy investors in the U.S. enjoyed double-digit returns from stocks over the past two years. But not for the majority of Black Americans.

Only 34% of Black American households owned equity investments, compared to 61% of white families, according to Federal Reserve Board’s most recent survey in 2019. The average value of stocks Black Americans owned only amounted to $14,400, nearly a quarter of what their white peers held, the data said.

“Because Black households are less likely to be invested in the stock market and on every level less likely to be engaged in the financial system, they not only entered the pandemic with large gaps, the likelihood is that we are going to see some of these gaps widen coming out of the pandemic,” said John Lettieri, the Economic Innovation Group’s president and CEO.

The primary way that Americans build wealth and invest is through retirement plans, and there have been enormous disparities between Black and white Americans on that front. Many Black Americans missed out on the hefty gains from the stock market because they often hold occupations where employers are unlikely to offer an employer-sponsored retirement plan.

Only 44% of Black Americans have retirement savings accounts, with a typical balance of around $20,000, compared to 65% of white Americans, who have an average balance of $50,000, according to the Federal Reserve. 

“If you have access to a wealth management plan, what’s happened in the last two years has been a boom to your bottom-line wealth,” Lettieri said.

The stock market pulled off a stunning recovery rally from the pandemic lows in March 2020, with the S&P 500 enjoying the fastest bull market since World War II, doubling off the bottom. Many credited unprecedented monetary and fiscal stimulus for the market’s leap out of its massive pandemic slump.

The Federal Reserve slashed interest rates to near zero, while bolstering financial markets with $120 billion in emergency monthly bond purchases. The rescue action came as the S&P 500 suffered its fastest 30% drop in history. Meanwhile, the government injected trillions of dollars into the economy in Covid relief spending, sending direct payments and unemployment insurance to many struggling Americans.

While these federal programs provided much-needed short-term relief, they never directly addressed the racial disparities in the jobs market. Black Americans bore the blunt of the initial job hit from the pandemic, and the labor-force recovery has been particularly uneven.

“The kind of jobs that went away immediately when the pandemic hit impacted communities of color to a much greater extent than white communities,” said Tatjana Meschede, associate director at Brandeis University’s Institute on Assets and Social Policy.

The latest jobs report showed that for all Black workers, the unemployment rate in December stood at 7.1% — more than twice that of white workers at 3.2%. The roughly two-to-one ratio for Black versus white unemployment has been consistent throughout history.

Black Americans have also held less risky assets such as bonds but those have much lower returns, especially in the past two years. A Credit Suisse study found that even among the top 5% Black wealth holders, they are more likely to own conservative investments like real estate, bonds and life insurance than their white counterparts.

— CNBC’s Nate Rattner contributed to this story.