There are several technical factors that are pushing US equities up. First, there is an IPO drought, where companies don’t find the window to come to the market at the valuations they want. Some of th are still “trapped” in PE funds waiting for the window to open. Second, M&A activity is picking up, also reducing the number of companies and shares available. Third, companies are not issuing new shares. The are in fact reducing shares outstanding through buybacks, which will reach $1Tn this year. As a result, as you can see in the chart below, there is a supply shock in the market at a time where liquidity has been high. There is almost $2.5Tn of shares available that have been retired from the market over the last 10 years. On top of that, buybacks have the additional “benefit” of increasing earnings per share, making companies look better that they should if they didn’t reduce the number of shares. This is a significant tailwind.
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