The global stock market is facing a supply shortage as fewer companies go public and buyback programs surge, according to a recent analysis by JPMorgan. The net issuance of new stock by global companies has turned the most negative since 1999, with more than $1 trillion worth of stocks being removed from global markets every year through corporate stock buybacks.
Ritholtz Wealth Management CEO Josh Brown highlighted the impact of this trend, stating that globally, $1.2 trillion worth of stocks are being removed from the markets annually due to buybacks. This ongoing decline in the supply of stocks is expected to provide a long-term tailwind for stock prices, as demand remains constant or increases.
Brown also pointed out that private equity firms, sitting on about $2 trillion of dry powder, are another source of cash that will be used to acquire companies. Additionally, there is over $6 trillion sitting in money market funds that could potentially be funneled into the stock market, further reducing the number of public equities available for investment.
The dwindling supply of global stocks is expected to pose a challenge for investors looking to put their money to work in equity markets. Brown emphasized that unless there is another surge in new companies going public like in 2021, there may not be enough issuance to meet the demand from capital pools.
Despite the supply shortage, there are other factors that could support the stock market, including continued disinflation, potential interest rate cuts from the Federal Reserve, and the growing adoption of artificial intelligence. As the global stock market grapples with this supply shortage, investors will need to navigate the changing landscape to find opportunities for growth and investment.
