Why is the US stock market shrinking?
The shrinkage is undeniable
Here are some eye-opening statistics;
- Although the value of US listed firms has been rising steadily for years, the Wiltshire 5,000 – one of the broadest representations of the US market – contains only around 3,600 firms
- The number of US companies as a whole has fallen nearly 40% since 1997
- There have not been fewer listed US stocks since 1984
What this reveals is that an ever-decreasing number of large firms dominate the US listed market and that this is a well-established trend. So what’s going on?
Why this is happening
There are two sets of forces at work that are causing this decline in numbers.
1. The laws of the corporate jungle
Firms have always disappeared from public markets when they are taken over, or merge with other firms. There is also a natural attrition that occurs when firms shrink down to a size that no longer qualifies them for a listing, or they simply go bust and disappear. However, none of this is new – another important factor is the key.
2. Fewer firms want to be listed
The reasons why some firms are now choosing not to come to public markets in the US vary. Some entrepreneurs fear the level of regulation and media scrutiny that comes with a listing. Others worry that once they list, they will come under intense pressure to deliver over very short-term time horizons. Then there are the CEOs in sectors such as technology who simply don’t see the point of a listing when they can raise capital from private equity and venture capital firms instead, well away from public markets.