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The summer months are usually relatively calm for the market as investors opt for sandbars instead of bars, but that hasn’t been the case this year.
The U.S. stock market is shrinking and investors are withdrawing money at a record pace as dark clouds gather over the U.S. economy.
That means Wall Street giants may have to contend with choppy seas on their way to Nantucket this year.
what’s happening: “Sell in May and walk away” is a common Wall Street phrase that refers to the tendency for investors to liquidate stocks and clean up portfolios before the holidays, and also alludes to the historically weak summer months for stocks.
But recent deal flow suggests something bigger is happening this year.
Bank of America analysts said on Tuesday that the bank’s clients have been selling U.S. stocks heavily for the fifth straight week. Last week alone, sales exceeded purchases by $5.7 billion, the biggest outflow since July of last year.
Bank of America recorded the second-biggest selloff in tech stocks in the bank’s history last week, and while a week doesn’t define a trend, it contrasts with the “Magnificent Seven” mania that swept Wall Street just a few months ago.
Trading volume is low, but the market is turbulentThe tides seem to have shifted and the usual summer doldrums are nowhere to be seen.
“The summer of 2024 could be volatile as momentum stalls amid policy uncertainty,” Lisa Shutlett, chief investment officer at Morgan Stanley Wealth Management, wrote in a note this week.
“Due to the economic backlash, [Federal Reserve] “They have become more cautious about cutting rates and the potential importance of each data point increases as debate continues over the extent of policy constraints,” she said.
A series of weak bond auctions could also roil the market. The upcoming presidential election is also expected to be closely contested. Market volatility tends to increase in October during election years, but low trading volumes and big underlying factors could lead to big swings in the coming weeks.
The Dow Jones Industrial Average has seen wild swings over the past two weeks as traders reacted to unexpected economic data.
A shrinking marketThe stock market is not the economy (for the most part), and its influence on the macro environment has been fading for some time now.
At its peak in 1996, there were 7,300 publicly traded companies in the U.S. Today there are about 4,300.
Nearly 90% of companies with revenues of more than $100 million are now privately held, said Torsten Slok, chief economist at Apollo Global Management, which accounts for about 80% of all U.S. job openings.
“At the end of the day, the public markets are a small part of the overall economy,” he said.
Putting it together: The market contraction and investor withdrawal suggest that risk appetite in the United States is rapidly fading.
According to CNN’s Fear and Greed Index, US markets are currently being driven by fear.
Years of rising interest rates and inflation, a chaotic political and geopolitical environment, and general economic uncertainty may be forcing both management and shareholders to retreat.
What it means: According to JPMorgan CEO Jamie Dimon, that’s worrying.
“total [of public companies] “Our stock price should have grown dramatically, not declined,” Dimon wrote in his annual shareholder letter this spring.
Meanwhile, the number of private U.S. companies backed by private equity firms has grown from 1,900 to 11,200 over the past two decades, according to JPMorgan data.
Of course, Dimon’s firm made huge profits from the IPO, so he’s hardly an impartial observer, but he argued that the concerns are broader than JPMorgan’s profits, and that if trends continue, our understanding of the U.S. economy could become even murkier.
“This trend is serious,” Dimon warned Monday. “We really need to think about whether this is the outcome we want.”
Colleague Matt Egan says CEOs earned big pay packages last year as the US stock market boomed.
Business owners have always earned more than their employees, but the gap between CEOs and employees is widening.
The average pay for an S&P 500 CEO will be 196 times higher than the average worker’s salary in 2023, according to an analysis by Equilar and The Associated Press.
This is 185 times the ratio in 2022.
The gap is widening because CEO pay, which is closely tied to stock prices, has risen significantly faster than employee pay, leaving many workers struggling to pay their bills.
There was a big increase just for 2023. The median total compensation (including stock compensation) for S&P 500 CEOs will soar to $16.3 million in 2023, a massive 12.6% increase compared to 2022, which saw a mere 0.9% increase year-over-year.
Workers’ incomes have also increased, but at a much slower pace.
The average employee at an S&P 500 company earned $81,467 last year, up 5.2% from 2022, according to the report.
In other words, that amounted to a roughly $4,300 annual pay hike for employees and a $1.5 million increase for the CEO.
U.S. job openings fell for a second straight month, hitting a three-year low amid further signs of a cooling labor market, my colleague Alicia Wallace reports.
The Bureau of Labor Statistics’ latest Job Openings and Labor Turnover Survey (JOLTS) report, released Tuesday, showed that there were 8.06 million job openings in April, down from the previous month’s downwardly revised figure of 8.36 million and the lowest since February 2021.
Economists had expected job openings to be 8.36 million, according to FactSet estimates.
As of April, there were an estimated 1.2 job openings for every job seeker, the lowest ratio since June 2021, according to BLS data.
Slower job growth could bring the labor market closer to pre-pandemic levels, but it could also signal a slowdown in the overall economy. The Federal Reserve is hoping demand will soften and price increases will slow further before it cuts interest rates in its fight against high inflation.
