Stock market is taking cues from the private market
Ample venture capital and low rates offer companies myriad options for raising money
The rise of private markets where companies are free from the constraints of quarterly reporting is already reshaping the makeup of the public stock market.
It’s sparked a secular decline in public listings. It’s led a prominent CEO to recently declare his intention to take his company private. It could also result in a loosening of rules around what’s required of public companies.
On Friday, President Trump said he instructed the Securities and Exchange Commission to study whether companies should release earnings twice a year, rather than four times. He tweeted that business leaders told him it “would allow greater flexibility & save money.”
Such a practice, while potentially helping companies to move away from short-term profit goals, would also limit investors’ visibility into corporate performance, a move that echoes the more-limited transparency among private companies.
It’s a clear sign that for public-trading venues, private markets are tough competition. Ample venture-capital funding and low rates have left companies with myriad options for raising capital without going through an increasingly expensive initialpublic-offering process and adhering to stringent listing requirements. There are now fewer public U.S. companies than in 1976, even though gross domestic product has grown sharply, according to a Credit Suisse report from last year.
The public markets could lose one more member if Tesla chief Elon Musk gets his way and completes a take-private deal. Though the outcome of that effort is uncertain, Mr. Musk indicated in a memo last week that his thinking is influenced by a grass-is-greener view of private markets. “Basically, I’m trying to accomplish an outcome where Tesla can operate at its best, free from as much distraction and short-term thinking as possible,” he wrote.
Given this backdrop, it’s not surprising that politicians want to reshape the financial markets. And it’s not just Mr. Trump tossing out ideas. Massachusetts Sen. Elizabeth Warren recently proposed that large companies be required to consider the interests of all stakeholders, including workers, and not just focus on maximizing shareholder value.
The stock market is slowly transforming itself. Everyday investors should hope these changes don’t reduce the transparency and access that public shareholders have historically enjoyed.