US stock market

Main article: US economy

Indexes

DJIA

• Dow Jones Industrial Average (DJIA) - stock index on the 30 largest companies USA

S&P500

• S&P500

2024

Reduction in the capitalization of the stock market by $1.5 trillion per day

More than $1.5 trillion was wiped out of the US stock market on December 18, 2024.

The top 10 companies account for more than 36% of capitalization and 25% of profit

As of October 2024, in the United States, the top 10 companies occupy more than 46% of capitalization, and give 25% of profit.

The net flow of non-residents into stocks in the US market is zero

From Nov. 23 to Aug. 24 (the phase of active growth of the US market and according to the latest data for August), the net flow of non-residents into stocks is zero.

Oct.22 through Aug. 24 (expanded bull market phase) accumulated flow of only $82 billion.

From May 13 to August 24, the accumulated net flow of non-residents to the American market is zero. The main inflow was from 1997 to 2012 in the amount of $1.5 trillion.

All money at this time goes mainly to Treaseris - $0.5 trillion in moving amount for 12 months, the peak inflow was in April 23 at the level of 0.8 trillion per 12 m.

For 8m24 net inflow of non-residents into American assets:

• Tregeris - 384 billion
• Corporate bonds - 249 billion
• Securities of agencies - 8 billion
• Shares - outflow by 12 billion.

All the money goes into bonds, and non-residents cover ¼ needs to finance the US budget deficit.

The capitalization of US issuers is about 187% of GDP. In the rest of the world - 61%

All US shares in mid-May 2024 are worth 187% of US GDP, while the rest of the world is worth only 61% of world GDP without the United States. Is such a difference in valuation warranted?

Corporate buybacks to boost capitalization are disrupting business

All corporate America by 2024 is sharpened to increase the shareholder value of the business, this is sewn into the gene of top managers. From beginning to end, the entire education system in the corporate management segment and corporate philosophy are built around business capitalization, where share buybacks are considered one of the main panacea for all troubles.

They can't think differently, Spydell Finance wrote. Qualification exams, CFA standards one way or another educate the "perfect manager."

The United States is the absolute leader in share repurchase costs (about $900 billion per year), which significantly exceeds the expenses of all companies in the world, but also concentration relative to free cash flow is above the permissible limit. As a rule, they spend more on shareholder policy than they can afford, and the cash gap is obtained through an increase in debt.

The logic behind the buyback is simple: flirting with investors through a "stock undervaluation signal," forcing higher financial multipliers through lower available stocks. Sometimes it can be tax optimization (there are usually no taxes on the byback, unlike divas), protection against hostile acquisitions, stock stabilization during turbulence, optimization of capital structure, and so on.

The main goal is manipulation of multipliers (a smaller number of shares increases EPS - profit per share) and overclocking shares through increased market demand. Managers' bonuses and KPIs are tied to the capitalization of companies (including through comparison with competitors), correlating with the ability of managers to occupy senior positions.

However, CFA courses do not usually mention the downside of such activities:

• A business that misuses shareholder policy essentially abandons a development strategy, switching to a value-retention strategy. Transition from growth company to value company.

One way or another, this happens to all companies, because continuous expansion at high rates is impossible, but balance is important here.

• An excessive increase in payments to shareholders almost always undermines the strategic stability of the business, both at the level of balance sheet ratios and at the level of competitiveness.

In the long term, continuous flirting with investors and "licking" speculators in the context of "just not to scare off" leads to a weakening of the business or to its collapse (from major stories:, General Electric,, Boeing,, and Intel IBM HP Cisco many other companies - veterans).

This is manifested almost always in one pattern with small industry variations: increasing the debt burden, saving on R&D, quality control and capital underinvestment, loss of momentum for technological development.

As a result, Boeing's aircraft fall apart on the fly, and other processor architecture and technical process do not change for 5-6 years (2012-2017 from Intel, until they received a blow from AMD).

Competition with the market is always doomed to collapse, because the rate of capitalization growth is several times higher than the ability of a business to generate cash flow and it turns out that over time the gap accumulates not in favor of maintaining the bubble.

The business is not able in the long term to cover and/or pay for the overheated expectations of speculators escalating exponentially, so such activities are doomed to failure.

The market has no memory, the market cannot buy loyalty. Moving away from the company of growth and/or reducing the intensity of shareholder policy leads to the collapse of the bubble always and without exception - a matter of time.

Ultimately, companies are left with an overloaded debt position, undermining authority and losing competitiveness due to the loss of momentum in technological development.

As soon as Apple reduces the byback three times, as out of 3 trillion capitalization, 1.5 trillion will remain, and if the byback is canceled when profits fall, capitalization will be cut by an order of magnitude. This applies to any company that abuses shareholder policy.

Quotations began to be edited by announcements of new technologies in the field of AI, and not macroeconomics

The trigger of market growth from January 2023 is formed exclusively in technology companies. Further, according to the principle of communicating vessels and through the feedback mechanism with a small delay and with different conversion, the positive impulse extends to all other sectors, Spydell Finance wrote.

For example, after the devastating events of the banking panic in March 2023, it was technology companies that provided a high-speed return to the uptrend, and from November 2023 the scenario was repeated in a more aggressive manner.

The market is losing feedback on the macroeconomic and financial profile of the information agenda.

If translated from financial into human language, in March 2023 the market was extremely susceptible to interest rate expectations and reacted to the Fed's rhetoric, but the further - the less dependence and completely disappeared by February 2024.

In other words, the market at this time is not interested in the actions of the Fed at all, because the market has ceased to be afraid of a high rate and does not particularly reflect on expectations for the rate. By inertia - yes, because trading algorithms are extremely tied to these models, but in the medium term - no.

And here an interesting conclusion looms.

From the beginning of 2023 to several waves (March-July 2023 and November 2023-January 2024), market dynamics are completely due to trends and triggers in technology companies, which in turn depend on news on artificial intelligence.

If you try to synchronize events, narratives and market trends, the value of macroeconomic, financial and political events tends to zero, while the value of announcements in the segment of language models soars exponentially.

In fact, the 50 trillion market capitalization of the American market depends on the announcements and modifications of ChatGPT and BARD, on which thousands of services tied to these technologies depend.

From March to July 2023, the market went into overclocking on events related to the introduction of ChatGPT 4, and from November 2023 it went into overclocking after the presentation of ChatGPT 4 Turbo.

The upward momentum of the NASDAQ was received from January 18, 2024, namely at that moment there was a press conference by Sam Altman, which was analyzed by specialized publications into quotes in search of information on the new version and the possibility of introducing agents within Artificial General Intelligence.

In the context of the technological revolution, technology corporations acquire absolute power and control over the world, and such boring and uninteresting events as GDP data or the Fed meeting are no longer of interest to anyone.

Here's what an interesting turn of events.

2023

Capitalization of all American companies $41.4 trillion

At the end of October 2023, the capitalization of all public American companies is estimated at $41.4 trillion, which is 5.7% higher than the last trading day in 2022. At its peak in July 2023, American market growth reached almost 19% since the beginning of the year.

According to the calculations of Spydell Finance, at this time in the United States traded:

• 1693 American companies, whose capitalization is above $1 billion, forming 98.7% of the capitalization of the entire market;
• 503 companies with a capitalization of more than $10 billion (market share 88.4%);
• 139 companies with a capitalization of over $50 billion (share - 68.2%).
• 72 companies with a capitalization of more than $100 billion (56.8% of market capitalization)
• 5 companies have a valuation of more than $1 trillion (share - 21.6%).

Since the beginning of 2023, the increase in capitalization of more than $1 billion has been provided by only 309 companies, forming $5.6 trillion of a positive contribution with a total capitalization of $22.8 trillion.

A drop of more than $1 billion was shown by 498 companies with a negative contribution of $3.17 trillion, having a total capitalization of $13.2 trillion. There are more companies in the negative trends, but with a smaller capitalization.

The most interesting is what in structure of growth of all market of nearly 6 items p was created only by four companies: Microsoft is plus of $644 billion since the beginning of year, Nvidia - $633 billion, Apple - $593 billion and Meta Platforms - $447 billion. The rest of the market is integral at zero.

The 20 most successful companies since the beginning of 2023 have made a positive contribution of $4.3 trillion, and if they are excluded from the calculations, it turns out that the rest of the market fell by 7%! The comparison base at the end of 2022 is low.

The bond market has been in drawdown for 38 consecutive months. Record in the history of the country

According to the results of September 2023, the US bond market has been in drawdown for 38 months, which is the longest "bear" bond market in history.

History of bubbles in the US stock market

Bonds worth $59 trillion were issued in the dollar system, of which 30 trillion were issued by the public sector

59.4 trillion is the volume of issued debt in bonds within the dollar financial system as of Q1 2023 (at par), of which 55.6 trillion is the debt of national issuers, of which 50.1 trillion is the debt of the non-financial sector (19.1 trillion private sector and 30.1 trillion state and quasi-public sector).

Public debt treaseris is estimated at 24.3 trillion, MBS (mortgage securities) and agency securities - 12 trillion, municipal bonds - 4 trillion, corporate bonds - 15 trillion (11.6 trillion national issuers, of which 6.9 trillion are non-financial business) and another 1.4 trillion in corporate bills.

Over 15 years, there has been a significant transformation in the structure of debt generation, greatly shifting priority towards public debt. From Q1 2008, the financial crisis of 2008-2009, the COVID-19 crisis in 2020 and the inflationary and debt crisis of 2021-2023 occurred.

Since Q1 2008, the debt of national issuers has almost doubled, increasing by 27.5 trillion (28.1 - > 55.6 trillion), where public debt (treaseris and municipal bonds) increased by 20 trillion and quasi-public debt (MBS and agency securities) increased by 4.5 trillion.

Financial sector bonds shrank by $1.4 trillion due to a funding glut triggered by Fed policy, while corporate bonds rose by $4 trillion.

In mid-2022, bonds were not in demand due to the record gap between market rates and inflation, however, as rates rose and inflation declined, demand gradually normalized amid the redistribution of liquidity from deposits.

From Q1 2022 to Q1 2023, non-financial sector bonds at face value increased by 2.1 trillion, and a year earlier the increase was by 2.9 trillion (net issue, as the difference between placements and maturities), but the growth was fully concentrated in Treaseris - 1 trillion and in MBS and agency securities - 1.1 trillion.

Municipal bonds are in the red for 32 billion per year, as are corporate (minus 127 billion) due to a sharp reduction in foreign bonds by 360 billion.

2022

Collapse in bond demand

Extreme liquidity problems in the dollar zone were identified in December 2022. After failed stock offerings through financial infrastructure in the American jurisdiction, corporate bonds are a complete disaster.

If Refinitiv Reuters' settlements in SIFMA processing are correct, the corporate bond offering in December was completely paralyzed. On garbage bonds - this was expected, because the whole of 2022 since March has been a failure.

In total, 2.2 billion in December and 112 billion in the year of gross placement of HY bonds, compared with 486 billion in 2021 and 424 billion in 2020, this indicates the scale of the problems.

The estimated volume of repayments amounted to 270-290 billion dollars, i.e. the cash gap of 160-180 billion. All this means that a toxic business not only lost the opportunity to raise funds from the open market, but also lost the main function of the stability of the financial system - an uninterrupted refinancing process.

As a result, they extinguish more than they place. There is no access to the balance sheets of this business category, but the hypothesis is that the gap is covered through aggressive lending from banks and the pace of lending confirms this (see US lending).

The volume of junk bonds in the total issue structure fell to 8.3% (at least since the crisis 2000 and 2008). It's an indicator of risk-taking and madness. For example, in 2021 there was a historical maximum of 25%.

This situation was previously described in the Spydell Finance channel, but the main New Year's surprise is the bonds of the investment rating, the placements for which were practically reset (6.6 billion against the norm of at least 100 billion per month).

To maintain the balance of debt, they need to raise up to 1.2 trillion per year from the open market (equalize the volume of placements and repayments). Therefore, 6-7 billion per month is a grandiose failure (15 times below the minimum threshold).

The share of floating rate emissions is growing sharply (21%) - a maximum of 15 years. There are fewer idiots who are ready to take on percentage risk, which is a pain for business, because for 15 years they lived at rates near zero.

The data is absolutely terrible, it doesn't get worse. This is a debt crisis, the Spydell Finance channel noted.

US Issuers Capitalization at 180% of GDP

The capitalization of public American companies as of Q3 2022 was $44.2 trillion among all companies traded on the American stock exchange with registration in the United States. These are losses over 15 trillion relative to December 2021.

By December 24, 2022, capitalization is approximately $47.3 trillion (+ 7%) - losses at the end of the year 21-22%.

The capitalization of national issuers relative to GDP according to preliminary own calculations of Spydell Finance balances about 180% against 245% at its peak in January 2022. Even with the current market decline, capitalization is too overvalued relative to the economy.

For example, at the peak of the dot-com bubble of 1 sq. 2000, the capitalization to GDP was 170%. If we exclude crisis periods and anomalies, as in 2020-2021, then in the period from 2010 to 2019 this coefficient was on average 137%, and in the period from 2004 to 2007 on average 120%.

During the inflationary crisis of 1970-1982, capitalization to GDP was on average 53%, falling at the moment to 36%. But then the structure of companies and the financial system was fundamentally different as far as you can imagine. Therefore, if the inflation crisis is protracted, one should not expect that the market will fall by 40-50% of the capitalization of GDP.

40-50 years ago, there were no information and biotechnology companies that now hold significant weight in indices, having the highest multiplicators.

Then the structure of the financial system was very different - there was not all the diversity of investment funds, a wide range of financial products, instruments and a large financial market.

58% of all families in the United States have shares. Median portfolio - $52K

In the US, in 2022, the degree of household participation in the stock market reached its highest ever - 58% of all families have shares directly or indirectly, compared with 51% on average from 2013 to 2019 according to the Fed in the SCF review.

Before the era of digitalization of financial investments, market participation was 37% in 1992.

Indirect ownership involves participation in the market through intermediaries (management companies within Wealth Management, mutual funds, hedge funds, any other financial institutions).

The degree of participation in the stock market reaches 96.4% in the group of the 10% richest in terms of income and 91.7% in the 80-90th percentile or in the second top ten in terms of income. The group of 20% of the richest (94% own shares) form a secured segment of the middle class, representing over 63 million people who own assets and people associated with them (family members).

The middle class - the top 40% in terms of income - owns shares of over 86% of families, and in the group 60-80% (3rd and 4th top ten) 78.7%.

The 20% of the poorest in the United States are only 17% of families on the market, but even so - this is the maximum presence for all time - 5 percentage points higher than in 2010-2019.

The median asset on the stock market is 52 thousand dollars for all families in 2022 (the market was 3800 points on the S&P 500) among those who own assets. This is the so-called average American.

• 10% of the richest have a median of $607 thousand, and this is a society with a capacity of over 33 million people.
• The second top ten has $128,000
• In 60-80 percentiles or the top 3 and 4 dozen in terms of income holds about $43 thousand
• TOP 20% of the poorest concentrate only $8.3 thousand in stocks.

20% of the richest are represented on the market by 94% among all families (only 6% of families outside the market) and hold 87% of the capitalization of the entire market, and 20% of the poor are represented by only 17% and hold 1.2% of the market.

A significant part of the assets is concentrated by old people - in the group of 65-74 years, the median asset in shares reaches $160 thousand compared to $110 thousand in the group of 55-64, $68 thousand in 45-54, $30 thousand in 35-44, and young people under 35 years old have about $12 thousand.

Net inflow of funds of individuals of residents by $268 billion for 3 quarters

In the American stock market, according to the results of the first three quarters of 2022, the position is accumulated according to the Fed data from the Z1 report and its own processing.

Individuals (US residents) directly and through intermediaries purchased securities for $268 billion for the period from January to September 2022 compared to purchases of 1.04 trillion in January-September 2021.

Cash flow fell nearly four times but is still positive.

However, they held on until the 3rd quarter, but could not resist. In the 3rd quarter of 2022, there were the largest net sales in 4 years by $115 billion from American individuals, but this is almost three times lower than the flight from the stock market in the 2008-2009 crisis.

Given the scale of money supply growth and capitalization, the current 115 billion is about 6-8 times less intensive withdrawal of money than in the 2008-2009 crisis, and then this continued for two years (back in 2007 they began to drain) for a total of $1.4 trillion.

To compare the scale - from 2009, 4.4 trillion dollars came to the market of shares from households (directly or indirectly) in the 3rd quarter 2022 inclusive.

The main cash flows were distributed from 2013 to Q2 2022 for a total amount of 4.3 trillion, where the most intensive from Q2 2020 to Q2 2022 - 1.9 trillion of net inflows, which became the most intensive entry into the stock market in the entire history of the US financial system.

Individuals bought out the "falling knife" for the entire first half of 2022 by $382 billion, the Spydell Finance channel noted.

Non-residents are the second most important provider of liquidity to American stocks.

The main purchases of American shares from non-residents were in 2020 - 670 billion per year, and if we compare the first three quarters of 2021 with 2022, then net purchases even increased from 108 billion to 154 billion.

Insurance and pension funds sell shares, and over the past 10 years, over $2 trillion, mainly due to the demographic factor and the increase in the number of pensions in the United States.

For the first three quarters of 2022, net purchases from US residents (all entities) amounted to 126 billion, compared with 667 billion in 2021, where in the 3rd quarter there were sales of 170 billion.

US companies buy back their shares on credit

Since January 2009, the main buyers of shares of American companies have become... the American companies themselves through the baibek. The cumulative cash flow that was distributed from U.S. businesses to the market net of offerings (IPO + SPO) was 4.7 trillion through Q3 2022.

After US households began selling $115 billion in securities in Q3 2022, corporations jumped into a confident lead in accumulated cash flows into the stock market.

During COVID-19, there was a rotation - business sharply suspended the pace of baybecs, and the population on helicopter money, on the contrary, began to buy out shares at the most intensive pace in the history of the market (almost 2 trillion in two years).

That is why the accumulated purchases of the population approached the baibek companies at the end of 2021, but now the business is again falling into the gap.

Non-residents collectively bought up shares of American companies by less than 1 trillion in 13 years, and the main movements were in 2020.

All other structures (pension and insurance funds, commercial banks, state funds and others) are net sellers of shares worth 2.8 trillion from January 2009 to September 2022, and since 2016 the pace of sales has accelerated sharply (compared to 2009-2015) and remains approximately uniform at 200 billion per year.

What is important to note here is funding for a byback, wrote the Spydell Finance channel. As it happens, net borrowings in bonds and loans from 2009 to 2012 are equivalent to share buybacks. In other words, the entire baibek formally goes on debt.

From 2009 to Q1 2022 for each dollar of the baibek, companies borrowed $1, and from Q2 2020 to Q3 2022 for each dollar of the baibek, the debt grows by $1.4, which indicates an integral decrease in margins in the context of the inflation crisis and a shortage of funding for investment projects.

What is interesting here is that if there were no byback, there would be no debts. From Q2 2021, the business is borrowing in loans, while the bond market is frozen due to lack of demand due to record negative real rates.

Capitalization of companies in the United States $43 trillion

How is the capitalization of public companies distributed among the countries of the world? When sampling over 45 thousand companies from around the world, global capitalization is estimated at $102.1 trillion as of November 26, 2022, according to Spydell Finance calculations and TradingView data consolidation. This is lower than Bloomberg's global market estimates (about $108 trillion).

15 countries have a national issuer capitalization of over 1 trillion, and only two countries over 10 trillion are China (13.7 trillion) and the United States (43.6 trillion), which form 56% of the global capitalization of all companies.

Interestingly, among all major countries, it is these two markets that are the weakest in terms of year-on-year dynamics, while European companies have practically reached their historical maximum in the national currency.

The Nasdaq 100 ends the first half with a 30% drop. Anti-record since 2002

First loss-making quarter after recession due to Covid-19 amid conflict in Ukraine

American stocks in March 2022 ended their first loss-making quarter since the pandemic "bear" market during COVID-19, Treasury bonds also suffered the worst losses in at least five decades.

Investors had nowhere to hide amid the Fed's rate hike, the conflict in Ukraine.

2021: $900 billion is poured into exchange-traded funds and long-term investment funds. More than the previous 19 years

According to analysts at Bank of America Corp. and EPFR Global at the end of November 2021, in 2021, investors poured almost $900 billion into exchange-traded and long-term equity investment funds - more than in the last 19 years.

That rally left U.S. stocks at an all-time high, and even some Wall Street analysts, who are typically in the bull cohort, are bearish for 2022.

Investors continue to argue about how quickly central banks will start raising rates to combat stagnant inflation, and how much that could undermine economic growth.

2019: Large-scale issues by several Central Banks lead to an average increase in capitalization over 10 years by 11.8%

From 2010 to 2019, the capitalization of the US stock market increased at a rate of 11.8%, and fundamental indicators grew closer to 5% per year, the discrepancy to 7 percentage points.

Since 2010, the expansion of the imbalance has been due to multiple episodes of collective QE (issue) from the leading Central Bank, ultra-soft monetary policy, a significant expansion of baibes, the development of social networks (Pump & Dump practice), increased media coverage of the market and market manipulation.

2007: Launch of investment funds, simplification of access of individuals through e-commerce and globalization gave an average yield of 9.5% over 17 years

From 1990 to 2007, the US stock market grew at 9.5% per year, and fundamentals gave an average of 5.5%, a differential of 4 pp.

At this time, the division of the market was due to institutionalization (the introduction and development of investment funds in its current form), the development of e-commerce (expansion and simplification of individuals' access to the market), the removal of restrictions from primary dealers on stock trading, cross-border penetration (active launch of non-residents into the market), globalization and digitalization.

1929

1910

See also

• Stock market of Russia