Thursday, May 28, 2015

A Shortage of Stocks

Here's a hidden factor as to why the market has continued to increase: All those buybacks have created a shortage of stock shares for sale. According to the Market Technicians Association, the number of "investible" publicly traded companies, which they defined as those with a share price above $5 and a market capitalization of more than $25 million, has fallen by 25 percent over the past 13 years.

Over that same time frame, the average share price of the 500 largest U.S. stocks has doubled from $40 to $80. In addition to stock buybacks, the Market Technicians blame mergers and acquisitions, which also reduce the number of a company's shares.

The dealmaking trends show no signs of easing up, either. In the first quarter, companies bought back a record $247 billion of their own stock, and according to Thomson Reuters, global M&A for 2015 has already totaled $1.5 trillion, up 23 percent higher from the same time period in 2014.

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