What Does the Shrinkage of US Exchange Listed Market Stocks Portend?

December 18th, 2013 | by Morris Beschloss | Comments

It may seem remarkable that in less than two decades the number of corporations with listed shares trading on U.S. Exchanges has dropped by about 40%. This is primarily due to an acceleration of mergers and acquisitions, privatization, and stock buy-backs with the long term low interest rates and escalation of global surplus money supply currently available.

To make the point dramatically, the vaunted Wilshire 5000 index is now down to 3,609. While the Dow Jones 30 Industrial Index, the most popular synonym for daily stock market standings, has retained its numbers and leadership role to the public, the evolution and replacements of its components has also picked up speed in the past two decades. Even the rate of downward deceleration of the exchange-listed stocks is eye-opening, when considering the drop from 9,000 as late as 1997 to about 5,000 currently, a 40% drop.

As a further point of interest, emphasizing such an amazing diminution, is the total amount of trillions of dollars invested in the various publicly-held corporations, then and now. The total market value of two U.S. major stock exchanges was about $20.9 trillion at the 2007 Standard and Poor’s 500 high, when the S&P had reached 1,565. In late November 2013, it had vaulted to an impressive 1,800. With the “market” substantially higher than the pre-“Great Recession” high, its total value is barely up 2% value wise at $21.4 trillion, even though the Standard and Poor’s total market value in late November was 15% higher.

What may lend an optimistic tinge to future stock market investing is the great abundance of international and institutional money chasing substantially fewer stocks. Although this commonality is no guaranty to world market values, the popularity of focusing on the global stock market as an ultimate investment vehicle has never been more popular than the current post-recession period of the last three years.

This thesis is supported by the fact that fixed income vehicles of all stripes have generated minuscule returns for several years, as the U.S. Fed and other major global central banks have kept their fixed rates historically low. This has resulted as inflation in general shows little signs of upward motion. It’s the outcome of global unemployment, monetary surpluses, and increasing commodity availability such as gold, agricultural products, copper, steel, and even fossil fuel derivatives which are going through a period of supply accretion, which current world demand is not fully absorbing.

Just as important is the rapid pace of technological evolution, in the areas of production, transportation, and communications, which is quickening the pace of “Initial Public Offerings (IPO’s). These may not be numerous, but are increasingly acting as a magnet for incrementally sophisticated investment opportunities. With federal regulations becoming increasingly annoying to Big Business in their impact on the bottom line, which is shared repeatedly with investors every quarter, this trend toward privatizing may accelerate forcefully in the foreseeable future.

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