Higher Stock Prices, Valuations Make Sense Because There's Not Enough Public Equity To Go Around, Josh Brown Says: 'It's Not Going To Change'

Ritholtz Wealth Management's Josh Brown is bullish on the markets for a number of reasons, the most important being a public equity supply shortage.

What To Know: Thursday on CNBC’s “Fast Money Halftime Report,” Brown argued that there are several tailwinds pushing the stock market SPDR S&P 500 Trust ETF SPY higher including AI and the prospect of rate cuts from the Federal Reserve, but there’s also something else going on, and it’s not going away, he said.

Brown referenced a recent report from the Financial Times showing that the global supply of public equity is declining at the fastest pace in more than 25 years. 

“It is undeniable that every year due to buybacks globally, we remove $1.2 trillion worth of stocks from the markets that can be bought by investors. It’s a fact and it’s not going to change. And in fact, this year it will go higher,” Brown said.

The United States has created a playbook for other countries to follow with share repurchase programs. As other countries look at the U.S. model, they are beginning to realize that if they want to fix their economies, they need to shore up capital markets first, Brown said, adding that several countries are already doing it.

“So that’s taking place and that will involve more and more buybacks, which means less and less places for money to go,” he said.

Private equity is playing a role here too. Only about half of the stocks that were around when Brown first started working in the world of investing are available to investors today. A lot of them are failed penny stocks, but some have been taken private. Private equity is sitting on about $2 trillion in capital that can be put to work, he said.

“The Wilshire 5000 can’t even muster an index. There’s not enough public equities to fill it … So when people say, ‘In my day, baseline P/E ratio was 16,’ it ain’t your day, player. It’s my day and in my day valuations are systemically higher because people need to invest,” Brown said.

The Financial Times reports that the total number of U.S.-listed companies has fallen below 4,000, down from more than 7,000 in 2000. A similar trend has reportedly unfolded in Europe and in the U.K.

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SPY Price Action: The SPDR S&P 500 is off to a fast start this year, up approximately 9% year-to-date. The SPY finished 0.75% higher at $518.00 on Thursday, according to Benzinga Pro.

This illustration was generated using artificial intelligence via Midjourney.