Record wealth, fragile cushion

September 14, 2026

Household net worth surged by $12.8 trillion in the second quarter to a new record high of $196 trillion. The second quarter rise represented a record gain and beat our expectations. Soaring equity market valuations fueled the increase. 

Financial assets comprising stocks, mutual funds and pensions jumped $11.7 trillion in the second quarter, powered by the 21.4% in the Nasdaq and 14.9% surge in the S&P 500 indices. Hopes of a permanent ceasefire in the US-Iran conflict prompted investors to move back into riskier assets.

Nonfinancial assets, mainly comprised of residential real estate, added another $1.1 trillion to assets on household balance sheets. The gains helped spur a rebound in consumer spending in the second quarter; higher tax refunds helped too.   

More cash on hand helped to blunt the blow of higher prices at the gas pump, but further concentrated consumer spending at the top of the income strata. That underlines the decoupling between the pace of spending and falling consumer confidence. 

Both the business and household sectors continued borrowing in line with recent quarters. Nonfinancial business debt grew at a 4.6% annual rate, compared to 7.2% growth in the first quarter. Household debt increased by 5.1% in the second quarter, up from 3.5%. Mortgage debt rose at a pace of 4.5%, while consumer credit neared 3%. 

A fragile cushion?

The headline gain masks a fragile reality beneath the surface. Low- and middle-income households are dipping into savings and taking on credit card debt as inflation erodes their purchasing power. The recent escalation of hostilities in the Middle East has pushed Brent crude oil back above $100 per barrel and gasoline prices above five dollars a gallon for premium.  As these pressures mount, spending growth will depend even more on affluent households – and, by extension, on continued equity market gains.

That linkage can be precarious. Wealth effects tend to hurt more when markets correct than they help when markets boom. The open question is whether the cushion that affluent households have amassed would slow a pullback in spending  if equity prices correct. 

The risks extend beyond household balance sheets. Inflation pressures are building in the pipeline as businesses absorb rising transportation costs from higher diesel prices. Truck fuel prices are testing record highs. Such large increases are likely to be passed through to consumers.

Retailers are stepping up targeted discounts in an effort to maintain foot traffic. Profit margins remain near historic highs, but gains are highly concentrated; earlier this year, a discount airline was forced into bankruptcy by a sharp spike in aviation fuel.

Housing offers little offset. Increasing mortgage debt is unlikely to be sustained in the second half of 2026, as mortgages "locked in" at low rates discourage owners from refinancing or trading up. Higher new mortgage rates are limiting home equity extraction and prompting price cuts, diminishing the primary source of wealth for most households. 

The recent jump in Treasury yields points to a housing market that will remain frozen through year-end. Since the conflict in the Middle East flared, mortgage rates have climbed 75 basis points, nearing 7% last week and leaving would-be buyers on the sidelines.