30 May 2024

We all know how the stock market is super-susceptible to rumors and speculation, but is a crash really on the horizon or is it merely fearmongering? The only way a crash can start is if market sentiment is strongly shifted to a negative, so let’s explore what we know so far and see if it is enough to sway sentiment.

The decline

The decline is visible in key global markets, particularly in the US, Europe, and the UK, where the number of listed companies has dwindled over recent years. General trading knowledge suggests that stocks are an excellent indicator of a region’s financial strength, but that relationship seems far from the truth these days.

We’ve seen Americans struggling with inflation and interest rates, all while the US stock market has been passing all-time highs. The German economy is also suffering, but the DE index is performing remarkably.

So what’s prompting the recent decline if not the economy?

In 1996, the US boasted over 8000 publicly traded stocks, but by 2022, this figure had fallen to 4,642.  Similarly, the UK has experienced a loss of 25% in the number of listed companies over the past decade, although Brexit is mostly responsible for that exodus.

This development has led to speculation that publicly traded equities might one day become an endangered asset class. Companies that were once publicly traded have been acquired by private equity firms, resulting in a smaller pool of publicly traded stocks.

Non-public companies are likely taking deals from private firms due to increasingly rigorous reporting requirements and regulatory scrutiny, making it less appealing for new firms to get listed on the stock exchange. Equity firms such as Blackrock, Vanguard, and State Street already control over $15 Trillion (USD) in assets, which equates to over a quarter of the S&P500 (US500).

Imagining the total privatization of global stocks isn’t much of a stretch for the imagination… although it won’t happen any time soon.