Will SpaceX bring stocks thudding back to earth?

Elon Musk may be the catalyst to tip the balance in this era of surging stocks and bring it all undone. (Reuters: Steve Nesius) Link copiedShareShare articleOptimism is a vital attribute when it comes to financial markets. It can fire up booms far beyond expectations and, occasionally, even the realms of reality. As we plough on through the fourth consecutive year of global stock records and huge annual advances, it's not surprising that many pundits have begun to question just how much longer this boom can continue. Wall Street has only managed this feat three or four times in the past century. The first was the wartime boom from 1942. Then there was the tech boom of the 1990s that unravelled in spectacular style in 2000. And now this. Since 2019, interrupted only by the Ukraine War, New York's main stock index, the S&P 500, has almost trebled, driven by a mere handful of technology giants. There's no shortage of concerns about the future. Wars on three continents, the possibility that ongoing hostilities with Iran may permanently destabilise energy markets, rising inflationary pressures and the distinct possibility of a US rate hike when the Federal Reserve next meets in August. There's a school of thought that higher interest rates may be the deciding factor, that they may just be the trigger to derail the frenzy gripping global markets. The success of the SpaceX market launch could tempt other tech giants to once again tap global stock investors. (Reuters: Joe Skipper) But those defending the boom point to the punishing round of post-COVID-era rate hikes, sparked by the previous energy crisis after Russia invaded Ukraine, which barely caused tech stocks and the investment world to blink. But there are other, far more fundamental shifts taking place beneath the surface that could tip the balance on this golden era of surging stocks, and Elon Musk may be just the catalyst to bring it all undone. For the past few years, we've been assailed by stories of how our local stock market has missed the boat and that it has been abandoned by major corporations. While there's plenty to be critical of about the ASX, the ever-shrinking number of companies on our exchange is a global trend. And surprisingly, it has been one of the biggest driving forces behind the incredible growth in stock market valuations, and by extension your superannuation balance. On Wall Street, the number of companies listed has halved since 1990, from 7,500 down to 3,600. Many were gobbled up in mergers with competitors. But the arrival of private equity firms in the early 2000s changed the nature of public stock markets as they plundered the market for underrated investments and scooped up prospective newcomers that didn't fill the breach. As the number of listed companies diminished, the amount of available investment targets fell, meaning more cash was distributed over a smaller number of stocks, thereby boosting returns. It's not just the shrinking number of companies that have funnelled investor funds into an ever-diminishing pool of investment opportunities. The number of shares on issue also dwindled. Rather than invest profits back into their companies, US chief executives embarked upon a splurge into the shares of their own companies. Democracy cannot survive trillionaires. We need to start taxing billionaires properly Partly it was a lack of imagination, but mostly it was for personal gain. Buying back your own company's shares boosted the share price and, given executive bonuses are awarded because of rising stock prices, it was an easy way to pocket a massive payout. The shareholders loved it too. Not only were profits distributed in a tax-efficient manner, but the value of their remaining stock shot up as well. As an added incentive, because the number of available shares was slashed, a metric called earnings per share was enhanced. That made it appear as though company profits were growing at a much faster clip, which encouraged punters to buy more stock. In the two decades to 2021, US corporations spent $US12 trillion ($17 trillion) on share buybacks, According to S&P Global, US firms last year distributed almost $US1 trillion to shareholders via buybacks. With what appears to be rapid growth in earnings, investors have been convinced to plough ever more cash into stocks and expanding the market capitalisation of corporations. Gwynne Shotwell (centre), president and COO of SpaceX, celebrates with colleagues during a bell-ringing ceremony for its IPO in New York. (AP: Frank Franklin II) As a result, US stock valuations have blown out. In 2011, during the aftermath of the Global Financial Crisis, America's top 500 companies traded at an average of 13 times earnings. That's now blown out to 32 times earnings. Suddenly, thanks to Musk, that trend has ended. His launch of SpaceX a fortnight ago on the tech-heavy Nasdaq exchange has suddenly reversed the flow. Instead of taking shares off the market,

Will SpaceX bring stocks thudding back to earth?

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Will SpaceX bring stocks thudding back to earth?

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