Stock market investors and general population is in a fix: When the stock market is currently reaching new heights, then why are stock pundits saying that it is shrinking? In fact, many people are wondering whether stock market is actually flourishing or experiencing a downfall.
Well, it is true that investors and pundits have overcome a number of hurdles to rebuild the otherwise sinking stock market. In fact, in recent times, stock market has witnessed an upward trend, has reached newer heights. Now, stock investors are faced with a new kind of challenge – the shrinking list of companies listed on the stock market.
Generally, most of the conglomerates list themselves on stock market by selling their shares to the public. However, over the years, the number of companies selling their shares has declined dramatically. Thanks to the previous recession and challenges many companies have been gobbled up, some of them have been merged with larger organizations or have gone private. But that’s not the only reason behind the sink. Many companies have thrown themselves off the stock market radar because of their disgust with the Wall Street, dwindling economies and severe instability in the market! That is why the availability of new stocks and public offerings is dramatically diminishing with each passing day.
Stock market has witnessed this fall over the past few years where the number of companies who offer shares to individual investors have declined, but this year the rate of decline has accelerated owing to astonishing amount of takeovers, buyouts and capital mergers.
When Robert Maltbie of Singular Research was approached for his comment on the issue, he said, “The stock market is going private.” He summed up the situation saying, “It keeps self consuming.”
Such a shrink has several implications, the most crucial being reduction in number of stocks, which consequently leads to lesser choices for investors for both broad and specific range of industries.
While many people believe that Wall Street is rigged, there is a range of investors that finds this trend upsetting. It is well known that US’s capitalistic system allows an individual investor to buy shares of American organizations in same way as a billionaire would. However, with companies like Dell, Heinz, OfficeMax and US Airways announcing that they would no longer trade on stock market has forced individual investors to lose their autonomy over selection of stocks.
The current trend is so strikingly dramatic that Wilshire 5000 index, which is a market measure of independent companies listed on US Stock Exchange doesn’t have enough companies to justify its namesake number! Yes, the number has shrunk lower with only 3,678 US based firms listed on stock exchange, which was over 7500 in 1998.
With larger companies, those with $250 million or more annual sales (Apple and Google for instance) are witnessing remarkable profits, companies’ major share holders are sucking up major profits, leaving scraps for individual investors. Moreover, smaller companies are facing difficulties in making profits, thereby forcing them to stay private.
Pundits like Maltbie fear that if such a disastrous trend continues then US would shrivel to a point where it would only have a few companies open for investments. The situation shall be similar to that of Europe. Nevertheless, at the same time, it might profit those looking to invest money in overseas companies. In fact, if we believe Wilshire’s Waid, such a trend would make publicly traded companies bigger and result in increase in public equity.