This was something I never considered as part of the model of the US market. I have long considered US equities to be overbought based on P/E ratios and other fundamentals when viewed on a historical perspective. However, I never took into consideration (even though I was acutely aware of it) that there are thousands less public companies now than 20 years ago.
When you view it as a supply/demand, it becomes more obvious. There was ~27 trillion that people had in the US market in 2016, from the numbers I am looking at. And that's with roughly 3,800 companies, giving us an average market cap of about 7.1 billion. If that number were to go back up to ~7,500, all else being equal we would very likely see those market caps cut in half as the funds dispersed across the rest of the market. Yes, this is a vast simplification and there are many factors at play like fundamental ratios and proper valuations to determine what companies are worth. But I think this is something that is certainly a factor and not something I had considered before.
When you view it as a supply/demand, it becomes more obvious. There was ~27 trillion that people had in the US market in 2016, from the numbers I am looking at. And that's with roughly 3,800 companies, giving us an average market cap of about 7.1 billion. If that number were to go back up to ~7,500, all else being equal we would very likely see those market caps cut in half as the funds dispersed across the rest of the market. Yes, this is a vast simplification and there are many factors at play like fundamental ratios and proper valuations to determine what companies are worth. But I think this is something that is certainly a factor and not something I had considered before.