if the bottom 90% of stockholders sold everything but the institutional remained neutral without selling, how much would the indexes be impacted

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Google AI Answer

Because the top 10% of wealthiest Americans and institutional investors control approximately 80-90% of the total equity market, the “bottom 90%” of stockholders hold a relatively small fraction of the total outstanding shares. If this bottom 90% completely liquidated their portfolios, it would trigger a sharp localized drop and high volatility, but market indexes (like the S&P 500 or Dow Jones) would not experience a permanent 90% crash. [1, 2, 3, 4]
Here is a breakdown of how the market and your indexes would react:
1. Market Mechanics and Price Impact

• A Flood of Sell Orders: A mass exodus would flood the market with sell orders. Without corresponding buyers at current prices, market makers would aggressively lower the bids.
• The S&P 500 Drop: While the exact number fluctuates with the business cycle, large-cap indexes like the S&P 500
are heavily weighted toward the largest companies (like Apple, Nvidia, and Microsoft). Because most of these mega-cap shares are heavily held by institutions (institutions hold ~80% of S&P 500 market caps), a sell-off confined to the bottom 90% of individual investors wouldn’t crash the heavyweights by 90%. The actual index drop would likely be much more moderate, determined by the market’s specific pricing mechanism at the time of the flood.
• Price Gaps: Since the institutional investors remained neutral and refused to buy or sell, there would be a severe market imbalance. Stock prices would plunge to whatever level it took to finally match sellers with buyers, causing temporary, chaotic price gaps.

2. Market-Wide Consequences

• Extreme Illiquidity: Because institutional block traders—like mutual funds and pension funds—stayed on the sidelines and provided zero counterparty liquidity, trading in smaller, less liquid companies could virtually freeze up.
• Margin Calls and Contagion: A sudden crash among mid- and small-cap stocks would likely trigger algorithmic margin calls for larger leveraged investors. This could force some institutions to break their “neutral” stance and sell off mega-cap blue-chip stocks to cover their losses, which would drag the indexes down further.

If you would like to explore this concept further, let me know:

• Would you like to compare the ownership concentration between specific indexes (like the S&P 500 versus the Russell 2000)?
• Are you interested in the mathematical difference between market capitalization-weighted indexes and price-weighted indexes in this scenario?
• Would you like to know how different brokerages handle liquidity freezes during massive sell-offs?

AI responses may include mistakes.

[1] https://www.youtube.com/watch?v=T5E7Ow-U3qg
[2] https://www.pionline.com/article/20170425/INTERACTIVE/170429926/80-of-equity-market-cap-held-by-institutions/
[3] https://www.facebook.com/RBReich/posts/the-top-10-of-richest-americans-own-87-of-stocks-the-top-1-alone-own-roughly-hal/1448838773276232/
[4] https://www.youtube.com/shorts/2S4u7qJMXwg
[5] https://www.aesinternational.com/blog/what-would-happen-if-everyone-invested-in-index-funds
[6] https://www.reddit.com/r/Burryology/comments/1jkm9zh/retail_investors_ploughing_into_the_markets_at/
[7] https://paperandblocks.com/2024/01/15/david-vs-goliath-when-advantage-tilts-toward-retail-investors/
[8] https://manhattan.institute/article/who-owns-the-stock-market-its-not-just-the-wealthy
[9] https://bookmap.com/blog/the-impact-of-block-trades-on-stock-prices-what-retail-traders-should-know
[10] https://medium.com/illumination/the-liquidity-illusion-what-every-investor-must-understand-about-market-collapse-99f3746dd3da

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