Analysis: People are exiting the stock market in droves | CNN Business

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The summer months are usually relatively good for the markets as investors choose sand bars over bar charts, but that is not happening this year.

The US stock market is shrinking and investors are pulling their money at a near-record pace as storm clouds gather over the US economy.

That means Wall Street titans may have to deal with choppy water as they navigate their Nantucket getaways this year.

What is happening: “Sell in May and run away” is a popular Wall Street ism that describes the trend of investors closing up shop and unwinding their portfolios before the holidays. It also alludes to stocks’ historical underperformance during the summer months.

But recent trade flows indicate that something bigger is at play this year.

Bank of America analysts said Tuesday that their clients have now been big net sellers of U.S. stocks for five straight weeks. Just last week, they sold $5.7 billion more shares than they bought, the highest flow since last July.

Bank of America recorded the second-largest selloff of tech stocks in its history last week. And while one week does not constitute a trend, it stands in stark contrast to the Magnificent Seven fervor that ensnared Wall Street just months ago.

Low volumes, busy markets: The tides seem to have shifted and the usual summer slumbers are nowhere to be found.

“The summer of 2024 could be volatile, with momentum stalled amid policy uncertainty,” Morgan Stanley Wealth Management Chief Investment Officer Lisa Shatlett wrote in a note this week.

“Economic intersections have moved away from [Federal Reserve] more tentative about rate cuts, reinforcing the potential importance of each data point as the debate continues over the degree of policy tightening,” she said.

A series of weak Treasury auctions could also rattle markets, not to mention the ongoing and closely contested presidential election ahead. Market volatility in an election year tends to increase in October, but low trading volume and big potential catalysts could mean big swings in the weeks ahead.

We’ve already seen bullish moves in the Dow over the past two weeks as traders reacted to unexpected economic data.

A shrinking market: The stock market is not the economy (for the most part). And its impact on the macro environment has been fading for some time.

At their peak in 1996, there were 7,300 publicly traded companies in the US. Today there are about 4300.

Nearly 90% of all firms with revenues greater than $100 million are now private, said Torsten Slok, chief economist at Apollo Global Management. Privately owned firms also account for nearly 80% of all US job openings.

“The bottom line: Public markets are a small part of the overall economy,” he said.

Putting it together: A shrinking market and retreating investors show that risk appetite in the US is fading fast.

Fear is currently driving the US market, according to CNN’s Fear and Greed Index.

Years of high interest rates and inflation, a chaotic political and geopolitical environment, and general economic uncertainty may be pulling for executives and shareholders.

What does it mean: That’s troubling, according to JPMorgan CEO Jamie Dimon.

“The total [of public companies] should have grown dramatically, not contracted,” Dimon wrote in his annual shareholder letter earlier this spring.

Meanwhile, the number of private US companies backed by private equity firms has grown from 1,900 to 11,200 over the past two decades, according to JPMorgan data.

Dimon’s company, of course, makes a lot of money from taking companies public, so he’s not exactly an unbiased observer. But Dimon said his concerns are broader than JPMorgan’s conclusion: If this trend continues, our understanding of the U.S. economy could become more ambiguous, he argued.

“This trend is serious,” Dimon warned Monday. “We really have to consider: is this the outcome we want?”

CEOs collected hefty pay packets last year as the US stock market boomed, my colleague Matt Egan reports.

Bosses have always made more money than workers. But the gap between CEOs and employees is growing.

The average CEO in the S&P 500 was paid 196 times more than the average worker in 2023, according to an analysis by Equilar and The Associated Press.

That’s up from a ratio of 185 in 2022.

The widening divide has been driven by the fact that CEO pay – which is closely linked to stock prices – is growing significantly faster than that of employees. Many workers, in fact, are struggling to keep up with the cost of living.

Only the jump in 2023 was significant. Average total compensation for S&P 500 CEOs (including stock awards) rose to $16.3 million in 2023 – a whopping year-over-year increase of 12.6%, compared to just 0.9% in 2022.

Workers also earned more money. But at a much slower pace.

The average S&P 500 worker earned $81,467 last year, up 5.2% from 2022, the report said.

To put it another way: The annual wage increase amounted to about $4,300 for the workers. For CEOs, it was an additional $1.5 million.

The number of US jobs contracted for the second month in a row, setting a new three-year low, amid further signs of cooling in the labor market, my colleague Alicia Wallace reports.

There were 8.06 million job openings posted in April, according to the latest Bureau of Labor Statistics Job Openings and Job Turnover Survey (JOLTS) report released Tuesday. That’s below the revised downwardly revised 8.36 million seen a month ago and the lowest since February 2021.

Economists had expected job openings to register 8.36 million, according to FactSet estimates.

As of April, there were about 1.2 jobs available for every job seeker. That’s the lowest ratio since June 2021, BLS data show.

A slowdown in job growth could put the labor market at levels closer to pre-pandemic levels, but it could also mean a slowdown in the broader economy. The Federal Reserve, in its battle against high inflation, wants to see demand soften and price growth slow further before cutting rates.