Multitudes of individuals are withdrawing from the stock market.
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The US stock market is experiencing a shrinkage, with investors rapidly withdrawing their money, raising concerns about the health of the US economy.
As the titans of Wall Street ready themselves for their summer getaways, they may find themselves navigating through rough seas.
What's happening: "Sell in May and go away" is a common expression amongst Wall Street investors to describe the practice of closing down shops and reorganizing their portfolios prior to vacations. It also alludes to the historical underperformance of stocks during the summer months.
However, recent trading flows suggest there's more to this year's trend.
Bank of America's clients have been selling off a substantial amount of US stocks for five consecutive weeks, with net sales reaching $5.7 billion last week, marking the highest outflow since July of last year. The bank also recorded its second largest sell-off of tech stocks in their history last week.
A week may not necessarily signal a trend, but it does contrast starkly with the optimism that engulfed Wall Street only a few months ago.
Volatile waters: The traditional summer lull has disappeared, and no signs of it can be found.
"Summer 2024 may prove volatile, with momentum stalling amid policy uncertainty," Morgan Stanley Wealth Management Chief Investment Officer Lisa Shatlett wrote in a note this week.
The Federal Reserve's tentativeness regarding interest rate cuts and the uncertainty surrounding them have intensified the significance of every incoming data point. Weak Treasury auctions and the upcoming presidential election could potentially cause unsettling swings in the market.
The Dow experienced significant volatility in the past two weeks, with dramatic shifts in response to surprising economic data.
A shrinking market: The stock market does not represent the entire US economy, but its impact on it has been declining for some time.
The number of publicly traded companies in the US plummeted from 7,300 to about 4,300, according to Torsten Slok, chief economist at Apollo Global Management. Private firms, which make up nearly 90% of companies with revenues greater than $100 million, now account for almost 80% of all US job openings.
"The public markets only make up a small part of the overall economy."
CEOs and investors pulling out: The US market's appetite for risk is diminishing noticeably.
The Fear and Greed Index, managed by CNN, indicates that fear is driving the current market. The contributing factors include sustained high interest rates, escalating inflation, a chaotic political and geopolitical environment, and economic uncertainty.
This poses a concern for Jamie Dimon, CEO of JPMorgan. In his annual shareholder letter, he stated, "The total [of public companies] should have grown dramatically, not shrunk."
The tally of private companies backed by private equity firms in the US has increased from 1,900 to 11,200 over the past two decades, according to JPMorgan data.
Dimon emphasized that his concerns transcend JPMorgan's profitability. In an interview, he asserted, "This trend is serious. We really need to consider: Is this the outcome we want?"
CEOs' staggering pay packets: According to Matt Egan, CEOs pocketed hefty salaries in 2023 as the US stock market thrived.
CEOs' compensation is closely related to the health of the stock market. While employees have been making comparatively smaller wage increases, their bosses' packages have escalated.
The median S&P 500 CEO was paid 196 times more than the median employee last year, marking an increase compared to the previous year when the ratio was 185. The median total compensation for S&P 500 CEOs, including stock awards, soared to $16.3 million in 2023, experiencing a substantial rise of 12.6%. Employees, however, only saw a 5.2% increase in their salaries.
The widening pay gap is largely a result of CEO compensation being more closely tied to stock prices, which have historically performed better than wages. Many employees are finding it difficult to cope with the cost of living, as inflation rates remain high.
Here's a different way of saying it: The annual pay increase amounted to around $4,300 for employees. For CEOs, it was an additional $1.5 million.
U.S. Job Openings Reach 3-Year Low Amid Slowing Economy
My colleague Alicia Wallace reported that job openings in the United States decreased for the second consecutive month, hitting a new three-year minimum. This trend is a sign of the labor market cooling down.
According to the Bureau of Labor Statistics' latest Job Openings and Labor Turnover Survey (JOLTS) report released on Tuesday, there were 8.06 million open job positions in April. This is less than the revised 8.36 million in March and the lowest number since February 2021.
Experts predicted 8.36 million job openings, based on FactSet estimates.
In April, there were an estimated 1.2 jobs available for every job seeker. This is the lowest ratio since June 2021, as per BLS data.
The slowing down of job creation might bring the labor market closer to pre-pandemic levels, but it could also indicate a slowdown in the overall economy. The Federal Reserve is hoping to see a reduction in demand and a perpetuation of price hikes before lowering interest rates in their fight against high inflation.
