Ken Fisher: What Equity Supply Is Signaling Now
Ken Fisher explains that equity supply—driven by IPOs, stock-based acquisitions, and share buybacks—influences stock market pricing through supply and demand dynamics. He argues that while increased equity supply can create downward pressure on markets, current equity supply growth is not at problematic levels.
Summary
Ken Fisher discusses the importance of monitoring equity supply as a factor in stock market pricing. He establishes that pricing across markets is fundamentally determined by shifts in supply and demand. For equities specifically, supply shifts emerge from companies' eagerness to issue new stock through various mechanisms. Fisher identifies two primary methods: IPOs and stock-based acquisitions. He contrasts stock-based acquisitions with cash acquisitions, explaining that when Company A acquires Company B using stock, it creates new shares and increases equity supply, whereas cash acquisitions involve destroying shares and shrinking supply. Fisher articulates the economic principle that when equity supply grows rapidly while demand remains constant, this creates downward pressure on the market. He acknowledges there is a broader discussion to be had about IPOs, but focuses on the aggregate trend of equity supply growth. His conclusion is that while equity supply continues to grow, it is not growing at a rate that he considers problematic at the current time, and therefore he does not view it as a significant concern for the market.
Key Insights
- Pricing in stock markets is determined by shifts in supply and demand for equities, with supply shifts emerging from companies' eagerness to issue new stock
- Stock-based acquisitions increase equity supply by creating new shares, while cash-based acquisitions decrease supply by destroying shares
- Rapid increases in equity supply with constant demand creates downward pressure on the market
- The critical question for market health is not whether equity supply is growing, but whether it is growing at a rapid rate
- Current equity supply growth is not accelerating at problematic levels, indicating it is not a significant market concern at this time
Topics
Transcript
[0:00] There is some importance, not make or break singularly, but some importance in monitoring equity supply because inherently pricing is determined by shifts in supply and demand for whatever. With the stock market, it's not that hard to be measuring shifts in supply which tend to come from eagerness to issue new stock in one form or another. Now, one form of [0:30] doing that is IPOs. Another is when company A buys company B by issuing stock to do the purchase rather than using cash to do the purchase. When company A buys company B for cash, it takes the shares and destroys them and that shrinks the supply of equity. But when company A buys company B,…
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