Here is one often-overlooked reason why U.S. stocks have been steadily climbing over the past 15 years

JPMorgan's Michael Cembalest attributes the sustained climb of U.S. stocks over the past 15 years significantly to an overlooked supply and demand imbalance. He highlights a shrinking net equity supply since 2011, primarily driven by corporate share buybacks, alongside consistent demand from an estimated $1.5 trillion in annual inflows from defined benefit and contribution plans. This dynamic, Cembalest argues, has fundamentally contributed to the U.S. equity market's resilience against various shocks.

Analysis

A structural supply-demand imbalance is presented as a significant, and often overlooked, factor underpinning U.S. equity market resilience over the past 15 years, according to analysis from JPMorgan's Michael Cembalest. Since 2011, the net supply of U.S. equities has been contracting, driven primarily by substantial corporate share buybacks, with the COVID-era IPO boom being a notable but brief exception. This shrinking supply has been met with persistent demand, underscored by an estimated $1.5 trillion in annual inflows from defined benefit and defined contribution plans, creating a steady bid for stocks. While other fundamental drivers, such as expanding profit margins, reduced earnings volatility, and the dominance of large-cap tech firms like Microsoft and Apple have also contributed, this supply-demand dynamic is credited with helping to absorb market shocks. This has limited the number of genuine bear markets to just two since 2011, despite the recent three-day losing streak for the S&P 500, Dow, and Nasdaq.

Key Decisions for Investors

• Investors should recognize the long-term structural support for U.S. equities from shrinking share supply and consistent institutional inflows, which may provide a buffer during market pullbacks.
• Monitor corporate buyback activity and trends in retirement fund flows, as a significant slowdown in either could weaken this key pillar of market resilience.
• Despite the strong underlying technical support, investors must remain cognizant of short-term volatility and fundamental risks, as demonstrated by the 2022 bear market and recent index declines.