At the end of last year, 5,008 stocks traded on U.S. exchanges, down 44% from a peak of 8,884 in 1997, according to the
What's more, the number of outstanding shares of stock available to be bought or sold has shrunk by nearly 10% since the end of 2010, according to S&P Dow Jones Indices.
The upshot? Some investment strategists say more money chasing fewer stocks created a supply-and-demand dynamic that is supportive of higher stock prices.
"The de-equitization of the markets may stand as perhaps the most unheralded reason for all of the rapid rise in stock prices since 2009,"
The reasons for shrinking stocks are many and date to the dot-com stock crash of 2000.
By the end of 2000, nearly 1,000 fewer companies were trading compared with 1997. The big drop was caused largely by fledgling tech companies going out of business. Every year in the 2000s saw a decline in the number of listed stocks. The number of stocks exiting exchanges picked up steam following the 2008 financial crisis and the Great Recession, when close to 1,000 more stocks disappeared from exchanges, according to the WFE.
That drop was due in part to fewer companies going public, with investor fear, rising costs, increased scrutiny and more stringent federal regulations cooling the market. Back-to-back market meltdowns in the past decade took a toll on the initial public offering market. In 2000, a record 406 companies went public, according to
The current environment has had a negative impact on the appetite for IPOs, says
The decline in listed stocks is also due to private-equity firms buying public companies and taking them private, as well as merger-and-acquisition activity.
Do fewer stocks to buy add up to higher prices?
"The number of companies has declined approximately 40% since 1997," says Sandven. "With less supply, and if demand remains constant, it does provide an upward bias in equity prices."
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