- There is a global supply shortage of shares as fewer companies go public and buyback programs increase.
- Net new share issuance by global companies has been the most negative since 1999, according to JPMorgan.
- "Each year, due to buybacks, globally we remove $1.2 trillion worth of stocks from the markets that can be purchased by investors," said Josh Brown of Ritholtz Wealth.
According to a recent note by JPMorgan.
The analysis, by JPMorgan's Nikolaos Panigirtzoglou, shows that more than $1 trillion of stocks are being removed from global markets each year through corporate share buybacks.
So far this year, the global public equity universe has shrunk by a net $120 billion, according to JPMorgan, marking the most negative year for net new equity issuance since 1999.
And if the supply of global stocks is decreasing, as long as demand remains constant or increases, stock prices should continue to rise.
That's the thinking of Ritholtz Wealth Management CEO Josh Brown, who said in a podcast appearance Thursday that unless there is another surge in new companies that go public like in 2021 โ Stock prices should see a long-term tailwind from the current decline in stock supply.
"Every year, due to buybacks, globally we remove $1.2 trillion worth of shares from the markets that can be purchased by investors. It is a fact and it is not going to change and, in fact, this year it will increase "Both in the U.S. but now abroad, country after country looks at the American model and says, 'Do you really know how to fix your economy first?'" Brown said. CNBC Halftime Report.
"China is doing it, Japan is doing it, Larry Fink just dedicated his Complete letter to the dear shareholder. to 17 countries around the world participating in this idea: 'Hey, let's do what the United States did, let's fix our stock market.' "So that's happening, and it's going to involve more and more buybacks, which means fewer and fewer places for the money to go," Brown said.
Another source of cash to be used gobbling up companies is private capital, which has around $2 trillion in dry powder waiting to be invested. Not to mention the more than $6 trillion in money market funds that could eventually be funneled into the stock market.
"That means more companies leaving the market," Brown said. "There are three thousand stocks, when I started in this business, there were 7,000. Now most of those missing stocks are penny stocks, so throw them away. But still, the Wilshire 5000 can't even put together an index, There aren't enough public actions to cover it."
"Here's the bottom line. With five more years left like 2021, when every piece of shit on the planet can go public, we simply aren't going to have enough issuance to satisfy the capital pools we need to put money to work in stock markets," Brown said on the topic in his podcast episode this week.
Other tailwinds for the stock market include continued disinflation, potential interest rate cuts by the Federal Reserve and the growing adoption of artificial intelligence, according to Brown.
