- As fewer companies go public and stock buyback programs proliferate, there is a worldwide shortage of stocks.
- According to JPMorgan, net issuance of new shares by global companies has fallen to its lowest level since 1999.
- “Each year, stock buybacks remove $1.2 trillion worth of stocks from the market available to investors around the world,” said Josh Brown of Ritholtz Wealth.
A recent report from JPMorgan found that a flurry of stock buybacks, a decline in secondary stock offerings and a weak IPO market are contributing to the global stock shortage.
According to an analysis conducted by JPMorgan’s Nikolaos Panigirtzoglou, more than $1 trillion in stocks are removed from global markets each year as companies buy back their own shares.
Global public equity markets have shrunk by a net $120 billion so far this year, making it the most negative year for net new stock issuance since 1999, according to JPMorgan.
And even if the world’s supply of stocks is decreasing, as long as demand remains constant or increasing, stock prices should continue to rise.
This is the view of Josh Brown, CEO of Ritholtz Wealth Management. He said on Thursday’s podcast that unless there is another surge in new public listings like in 2021, stocks should continue to have the tailwind of reduced supply over the long term. KK.
“Each year, we remove $1.2 trillion worth of stocks from the market available to investors around the world for share buybacks. This is true and will never change; in fact, this year It’s going to go up even more. In the U.S., but now overseas, countries are looking at the U.S. model and saying, “Do we actually know how to rebuild the economy? First, let’s rebuild the capital markets.” Brown said. said on CNBC’s halftime report.
“China is doing it, Japan is doing it. Larry Fink wrote his entire letter to Dear Shareholders about the idea of “Let’s do what America did: Let’s rebuild our stock market.” So that’s what’s happening, and that means more and more share buybacks and fewer and fewer places for the money to go.”
Another source of money used to gouge companies is private equity, with about $2 trillion worth of dry powder waiting to be invested. Not to mention that more than $6 trillion is sitting in money market funds and could eventually be funneled into the stock market.
“This will cause more companies to exit the market,” Brown said. “We have about 3,000 stocks, and when I started this business we had 7,000. Now most of the stocks we’re short on are penny stocks, so let’s get rid of them. Still, the Wilshire 5000 is an index There is not enough public equity to fill it.”
“Here’s the bottom line: It takes another five years, like 2021, when all the shit on the planet is going to be public, to fill the pool of capital that needs to be put into the stock market. There won’t be enough publication,” Brown said on this week’s podcast episode.
Other tailwinds for the stock market include continued disinflation, potential interest rate cuts by the Federal Reserve, and increased adoption of artificial intelligence, Brown said.
