Analysis: People are exiting the stock market in droves | CNN Business (2024)

Analysis: People are exiting the stock market in droves | CNN Business (1)

The tides appear to have shifted on Wall Street and the usual summer doldrums are nowhere to be found.

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The summer months are usually relatively benign for markets as investors opt for sandbars in lieu of bar charts, but that’s not happening this year.

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

That means the titans of Wall Street may have to contend with choppy water as they cruise toward their Nantucket getaways this year.

What’s happening: Sell in May and go away” is a popular Wall Street-ism that describes the trend of investors closing up shop and sorting out their portfolios ahead of vacations. It also alludes to the historical underperformance of stocks during the summer months.

But recent trading flows show that something larger is at play this year.

Bank of America analysts said on Tuesday that their clients have now been large net sellers of US stocks for five weeks in a row. Just last week, they sold off $5.7 billion more in stocks than they purchased, the highest outflow since last July.

Bank of America recorded the second largest sell-off of tech stocks in their history last week. And while one week does not a trend make, it does stand in stark contrast with the Magnificent Seven fervor that ensnared Wall Street mere months ago.

Low volumes, eventful markets: The tides appear to have shifted and the usual summer doldrums are nowhere to be found.

“Summer 2024 may prove volatile, with momentum stalling amid policy uncertainty,” wrote Morgan Stanley Wealth Management Chief Investment Officer Lisa Shatlett in a note this week.

“Economic crosscurrents have left the [Federal Reserve] more tentative regarding rate cuts, amplifying the potential significance of each data point as debate continues over the degree of policy restriction,” she said.

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

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

A shrinking market: The stock market isn’t the economy (for the most part). And its influence over 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 4,300.

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 jobs openings.

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

Putting it together: A shrinking market and retreating investors indicate that the appetite for risk in the US is quickly fading.

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

Years of elevated interest and inflation rates, a chaotic political and geopolitical environment and general economic uncertainty may be sending both executives and shareholders into retreat.

What it means: That’s worrisome, according to JPMorgan CEO Jamie Dimon.

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

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

Dimon’s company, of course, makes a huge amount of money from taking companies public, so he’s not exactly an impartial observer. But Dimon said his concerns are broader than JPMorgan’s bottom line: If this trend continues, our understanding of the US economy could become hazier, he argued.

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

CEOs are making almost 200 times what workers are

CEOs raked in fat pay packages last year as the US stock market boomed, reports my colleague Matt Egan.

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

The median CEO in the S&P 500was paid 196 timesas much as the median employee 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 is driven by the fact that CEO pay — which is closely tied to share prices — is rising notably faster than that of employees. Many workers, in fact, are struggling to keep up with the cost of living.

The jump in 2023 alone was significant. Median total compensation for S&P 500 CEOs (including stock awards) soared to $16.3 million in 2023 — a huge year-over-year increase of 12.6%, compared to just 0.9% in 2022.

Workers made more money, too. But at a much slower pace.

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

To put it another way: The annual pay hike amounted to about $4,300 for workers. For CEOs, it was an extra $1.5 million.

Job openings fall to new 3-year low, as theUS economycontinues to slow

The number of job openings in the US shrank for the second month in a row, setting a new three-year low amidfurther signals of cooling in the labor market, reports my colleague Alicia Wallace.

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

Economists were expecting job openings to register 8.36 million, according to FactSet estimates.

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

A slowing of job growth could put the labor market on closer footing to pre-pandemic levels, but it also could mean a slowing in the broader economy. The Federal Reserve, in its battle against high inflation, is wanting to see demand soften and price hikes slow even furtherbefore cutting rates.

Analysis: People are exiting the stock market in droves | CNN Business (2024)


How to do business analysis of a stock? ›

Your analysis of a stock should include a thorough look at the company's most recent earnings reports. More than simply checking revenue and profit, this also means reading the press release and call transcript to see which products and issues the company highlighted.

How do you analyze a company in the stock market? ›

There are a few aspects to consider when you wish to determine whether a share is worth investing in. The company's fundamentals: Research the company's performance in the last five years, including figures like earnings per share, price to book ratio, price to earnings ratio, dividend, return on equity, etc.

Why most of the people fail in stock market? ›

Lack Of Discipline

However, many new traders enter the market with a casual mindset, often influenced by the stories of quick riches. This lack of discipline leads to impulsive decisions and poor trading plans that fail to analyse the market thoroughly.

How is the stock market analysis? ›

It involves studying the past and present market data and creating a methodology to choose appropriate stocks for trading. Stock analysis also includes the identification of ways of entry into and exit from the investments.

How to do stock analysis for beginners? ›

4 steps to research stocks
  1. Gather your stock research materials. Start by reviewing the company's financials. ...
  2. Narrow your focus. These financial reports contain a ton of numbers and it's easy to get bogged down. ...
  3. Turn to qualitative stock research. ...
  4. Put your stock research into context.
Feb 22, 2024

How to do a simple business analysis? ›

How to create a business analysis model
  1. Identify the primary business objectives. ...
  2. Gather background information. ...
  3. Identify external and internal contributors. ...
  4. Define the project scope. ...
  5. Detail project requirements. ...
  6. Oversee technical application. ...
  7. Assist in implementing the solutions. ...
  8. Assess the value generated by the project.
Feb 3, 2023

How to do a company analysis? ›

6 Steps for a Company Analysis
  1. Begin with a macro (big picture) environmental scan. Drill down to a micro (specific industry/company) scan. ...
  2. Find competitors. ...
  3. Use: ...
  4. Look at: ...
  5. SWOT Analysis (Strengths, weaknesses, opportunities & threats). ...
  6. The steps above are a recursive process that you will repeat many times.
Apr 30, 2024

How do I analyze my market? ›

How to conduct a market analysis: 7 steps
  1. Determine the purpose of your study. There are many reasons why businesses might conduct market research. ...
  2. Look at your industry's outlook. ...
  3. Pinpoint target customers. ...
  4. Compare your competition. ...
  5. Gather additional data. ...
  6. Analyze your findings. ...
  7. Put your analysis into action.
Oct 21, 2022

How to make a stock analysis report? ›

Writing the Stock Report
  1. Crafting an Engaging Introduction. ...
  2. Presenting the Company Overview. ...
  3. Discussing Financial Performance. ...
  4. Evaluating the Competitive Landscape. ...
  5. Analyzing Risks and Opportunities. ...
  6. Providing a Valuation and Recommendation.

Why do 90% of traders lose money? ›

Trading is a skill that requires education, practice, and experience. Most traders fail because they do not invest enough time and effort in learning about the markets and trading strategies. They enter the market without a proper plan or strategy, which leads them to make poor decisions and lose money.

Do 90% of people lose money in the stock market? ›

About 90% of investors lose money trading stocks. That's 9 out of every 10 people — both newbies and seasoned professionals — losing their hard earned dollars by trying to outsmart an unpredictable and extremely volatile machine.

Is everyone losing money in the stock market? ›

If your financial adviser responds by telling you that “everyone” lost money, don't settle for that answer. Even if the stock market took a nosedive (such as in response to the coronavirus pandemic), it simply isn't ever true that “everyone” lost money.

Which analysis is best for the stock market? ›

Fundamental analysis in the stock market is the examination of key factors affecting the intrinsic value of a security, such as earnings, revenue, and other financial metrics, to determine its potential investment value. Fundamental analysis serves as the robust bedrock for evaluating a stock's true value.

What is basic analysis in stock market? ›

Fundamental analysis is a method of evaluating the intrinsic value of a stock. This form of analysis combines external events and influences, as well as financial statements and industry trends. Remember the intrinsic value/fair value of a stock does not change everyday.

How to fundamental analysis of stocks? ›

Fundamental analysis is a method of determining a stock's intrinsic value. Fundamental analysts search for stocks trading at prices higher or lower than their real value. If the fair market value exceeds the market price, the stock is deemed undervalued, and a buy recommendation is given.

How do you calculate stock analysis? ›

The most common way to value a stock is to compute the company's price-to-earnings (P/E) ratio. The P/E ratio equals the company's stock price divided by its most recently reported earnings per share (EPS).

How to analyze if a stock is worth buying? ›

Evaluating Stocks
  1. How does the company make money?
  2. Are its products or services in demand, and why?
  3. How has the company performed in the past?
  4. Are talented, experienced managers in charge?
  5. Is the company positioned for growth and profitability?
  6. How much debt does the company have?

What is a good PE ratio? ›

To give you some sense of what the average for the market is, though, many value investors would refer to 20 to 25 as the average P/E ratio range. And again, like golf, the lower the P/E ratio a company has, the better an investment the metric is saying it is.

How do you analyze stock financials? ›

The income statement, balance sheet, and statement of cash flows are required financial statements. These three statements are informative tools that traders can use to analyze a company's financial strength and provide a quick picture of a company's financial health and underlying value.

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