獅山巡禮
投資雜談
Long, drawn-out bear markets could be history due to supply and demand dynamics in the stock market.
That's according to Hank Smith, the director and head of investment strategy at Haverford Trust.
The declining number of public firms and the rising number of share buybacks fuel this dynamic.
Probably no other term strikes the kind of fear into investors that "bear market" does.
The phrase invokes imagery of the 2008 financial crisis, the dot-com bust in 2000, and the 1929 crash leading into the Great Depression. In all of those cases, wealth evaporated in months and wasn't rebuilt for years.
But is there really that much to fear anymore when it comes to bear markets, or declines of at least 20%? Sure, no one likes a significant market pullback, but if you stay invested, there's evidence that they may not be all that painful — and that the long, drawn-out, yearslong ruts in the market may be a thing of the past.
That's according to Hank Smith, the director and head of investment strategy at Haverford Trust, which manages and consults on $15.3 billion of assets.
In a recent interview with Business Insider, Smith laid out the main reason bear markets might be more short-lived going forward: A significant imbalance in the supply of shares on the market and demand for them.A few decades ago, the number of publicly listed firms in the US was over 7,000, he said. Now it's under 4,000.
This number has also been shrinking relative to the US population. There are about 13 publicly listed companies per million people today, compared to 30 companies in 1996.At the same time, there is a record amount of cash — $7 trillion in money market funds — on the sidelines, he said.
What's more, stock buybacks have been generally on the rise, lowering the supply of stocks available for investors to buy. In the first quarter of this year, there were $55.3 billion in stock buybacks. In the first quarter of 2019, by comparison, that number was $12.8 billion. In the first quarter of 2000, there were $7.9 billion.
When there are fewer stocks available to be traded, prices tend to be more volatile.
"There's been a real reduction in many companies of their shares outstanding," Smith said. "I think that's a big reason why you don't get these elongated periods of two to three years to recover from a bear market."
He added: "It really is the result of supply and demand. I don't think it's much more complicated than that."
Rick Rieder, the chief investment officer of global fixed income at BlackRock, said last week that this is the "best investing environment ever" partly due to this dynamic.
"Technicals in equities are crazy," Rieder said in an interview with CNBC. "The demand versus supply is pretty extraordinary. "
Alex Morris, the chief investment officer at F/M Investments, also recently discussed supply and demand dynamics with Business Insider. Despite a laundry list of risks to stocks — including the impact of tariffs and high valuations — the insatiable demand from investors for stocks likely means the market will continue marching higher, he said.
"There's a lot of dollars floating around and they need to go somewhere," he said. "They're going to the equity market."
While the sample size is small, there are a couple of pieces of evidence supporting Smith's theory, he said: the 2020 and 2022 market crashes, when the market fell 35% and 25%, respectively. In each instance, the market regained fresh all-time highs in a year or less. Of course, there were other factors at play, like unprecedented fiscal and monetary support in 2020 and the release of OpenAI's ChatGPT chatbot in late 2022.
"This isn't like bear markets a generation or two ago that sometimes it took years to get back to the highwater mark," Smith said. "These bear markets are followed by very, very swift, powerful bull moves."
