Summary of Key Points
The U.S. stock market has seen nine consecutive weeks of gains (the longest upward trend since the end of 2023), driven by three main factors: expectations of AI-driven profits, geopolitical stability (the extension of the ceasefire between the United States and Iran), and stock repurchases. However, current trends such as AI investments competing for repurchase funds and a surge in new stock offerings (IPOs from companies like SpaceX) are altering the supply-and-demand balance in the market. At the same time, the U.S. economy is experiencing a “K-shaped divergence” – where the wealthy benefit from strong stock market activity, while the poor are struggling under inflation. Since 2008, we have entered an era of “stock market capitalism,” where policies are tailored around the needs of the stock market, making it the core of the economy. In the future, we need to be vigilant about risks such as the impact of new stocks on liquidity and rising Treasury yields.
Detailed Analysis
#### 1. The Hidden Driver Behind U.S. Stock Market Gains: How Powerful Are Stock Repurchases?
You can think of stock repurchases as companies buying back their own shares. With fewer shares in circulation, the remaining shares become more valuable (increasing earnings per share). After 2008, when the Federal Reserve began quantitative easing, companies could borrow money at very low costs and aggressively use these funds for repurchases:
- Apple CEO Tim Cook is a master of this strategy: The company’s stock price rose from $18 in 2008 to $311 through repurchases, boosting its market value to over $3 trillion.
- The seven largest U.S. companies spent $230 billion on repurchases last year, reducing the total number of shares in circulation by 4%.
- This is like having fewer apples available in the market, which naturally drives up prices; repurchases have been a key factor behind the 15-year increase in the U.S. stock market.
However, with the rise of AI, this “driver” may be starting to fade. Large cloud service providers like Google and Amazon plan to invest $750 billion this year in building AI data centers (a 70% increase from last year), and even companies like Meta and Alphabet have stopped cash repurchases to fund their AI initiatives.
#### 2. Will the New Stock Wave Overwhelm the U.S. Stock Market?
Previously, stock market growth was driven by reduced supply due to repurchases; now, there’s a shift towards increased supply from new stock offerings:
- SpaceX is planning an IPO that could add $1.8 trillion to the market value. Together with Anthropic and OpenAI, these three companies could add another $4 trillion in market value, representing a 6% increase in the total number of shares.
- More AI-related companies are expected to go public next year, further reversing the supply-and-demand balance.
This doesn’t necessarily mean a crash, but it will certainly change the rules of the game. The stock market is traditionally a place for companies to raise funds, and previous widespread repurchases were an exception; now, the IPO trend represents a return to its fundamental role. However, so many new stocks could put significant pressure on liquidity.
#### 3. A Divided U.S. Economy: The Pain of Inequality
The U.S. economy is not in recession, but the population is polarized:
- Wealthy Investors: They have profited from the stock market and are spending heavily (on luxury goods, travel, etc.).
- Poorer Consumers: The ALICE group (those with jobs but no savings, who spend all their monthly income) and impoverished families account for 42%. Rising gasoline prices and high inflation make life difficult for them.
This “K-shaped” divergence is problematic because the poor have voting power, which could influence political outcomes in mid-term elections. After all, when people’s lives are tough, they will likely use their votes to express dissatisfaction.
#### 4. The Stock Market as the Heart of the U.S. Economy: From Free Capitalism to Stock Market Capitalism
2008 marked a turning point:
- Before: Free capitalism, with minimal government intervention and a focus on free competition and globalization.
- After: Stock market capitalism, where the stock market has become the center of the economy, with policies tailored to its needs. The Federal Reserve’s monetary policy is aimed at boosting stock prices, and fiscal policies support large companies. The market value of stocks as a percentage of GDP has risen from 51% before 1998 to an unprecedented 238%.
This indicates that the U.S. economy is increasingly dependent on the stock market: AI investments rely on stock market financing, consumer spending is fueled by stock market wealth, and even government policies are influenced by market trends.
#### 5. Future Risks to Watch Out For: New Stocks, Interest Rates, Geopolitics, and Data
Key risks include:
- Impact of New Stocks: Will the influx of new shares from IPOs, such as SpaceX, deplete market liquidity?
- Rising Interest Rates: If long-term Treasury yields increase, stock market valuations could be undermined (fewer people will buy stocks if interest rates rise).
- Current Focus: Will the ceasefire between the U.S. and Iran continue? The May non-farm payroll report (expected at 99,000 jobs, down from previous periods) and Eurozone CPI (3.2%) could influence central bank decisions regarding interest rates.
- Policy Changes: Could the Federal Reserve change its easing stance due to inflation or employment data?
Any of these factors could suddenly end the current stock market boom.
Final Conclusion
The U.S. stock market’s success has been built on repurchases, AI investments, and monetary easing. However, with the slowdown in repurchases, the influx of new stocks, and economic inequality, future risks are significant. It’s like a feast where the ingredients are running out, but the host is still adding more guests. Whether the party can continue depends on future supply and policy developments.