How Regulations and Market Shifts Are Squeezing Value from Public Stocks and Widening the Wealth Gap

The U.S. stock market has shrunk in a lasting way compared to the overall economy – it’s not just a temporary dip. Laws like Sarbanes-Oxley (SOX) and rules put in place after the 2008 financial crisis have made it more expensive and risky for companies to go public. As a result, fewer companies list on stock exchanges, and more money is flowing into private investments instead. This shift squeezes returns for everyday investors, concentrates wealth among the rich, and pushes bigger risks into less-regulated areas.

Public Listings: A Long-Term Drop That’s Here to Stay

The Facts

• The number of U.S. companies listed on stock exchanges hit a high of over 8,000 in 1996 and has dropped sharply since. From 1996 to 2023, listings fell by about 40-50%.
• By 2023, the U.S. had roughly half as many listed companies per person as other advanced countries, showing a growing “listing gap.”
• Since the late 1990s, more companies have left the public markets than joined, mainly through buyouts or choosing to go private, and this isn’t just a short-term trend.

What It Means

Rather than bouncing back after the 1990s boom, the number of public listings has settled into a new, lower level that doesn’t keep up with economic growth or population. This lines up with the idea that tougher regulations have made companies think twice about going or staying public.

Bottom Line: Public stock markets are now smaller and more focused on big players, limiting chances for traditional investors to find good deals.

How Regulations Are Shrinking the Supply of Public Stocks

How It Works

• SOX and later rules on reporting and oversight have boosted costs for compliance and raised personal risks for company leaders.
• More businesses are staying private for longer (or forever) to skip these headaches.

Key Evidence

While we can’t prove it’s the only cause, the ongoing drop in listings compared to the economy’s size started right after SOX and points to regulations as a big reason companies avoid going public.

Bottom Line: This smaller pool of public companies hurts value investors, who used to thrive by digging through a wide range of stocks to spot undervalued ones.

Private Markets: The Boom in Alternatives

Growth Numbers

• Global private equity assets hit about $5.3 trillion by 2023, with plenty of unspent cash showing investors keep pouring in.
• The whole private market space (including real estate and private loans) is expected to top $30 trillion by 2030, based on industry estimates.
• Assets in alternative investments more than doubled in the last decade, and the trend shows no sign of slowing.

Growing Share

Private investments are still a smaller slice of the global money pie, but their rapid rise has changed how big investors spread their funds. Growth in private loans also means money is shifting to custom lending, not just company buyouts.

Bottom Line: Private markets are soaking up money that once went to public stocks and traditional bonds.

Money Is Moving, Not Disappearing

Overall Growth in Capital

The world of investing has exploded over the past 20 years. Big firms like BlackRock hit record assets over $14 trillion by late 2025, with more focus on private deals amid huge inflows.

Changing Priorities

Big investors who used to stick mostly to public stocks and bonds are now shifting to private equity, loans, and other alternatives. They’re chasing better returns to meet their goals, even as total available money keeps growing.

Bottom Line: This isn’t about less money in markets. It’s about funds flowing to less-regulated, more tailored options.

Risks Are Shifting, and Returns Are Getting Squeezed

Hidden Dangers

Private markets are less open and don’t update values as often as public ones. As private loans and equity grow, they create risks, like hidden debt or cash shortages, that regulators can’t easily spot until problems hit.

Impact on Returns

With so much money chasing deals and low interest rates shrinking future discounts, expected profits are lower across the board, especially in public stocks and long-term bonds. Private options offer better payoffs but are mostly for the wealthy, while public stock rewards have shrunk due to less variety and liquidity.

Bottom Line: Rules meant to make visible markets safer might have just pushed bigger threats into hidden spots.

Effects on Wealth and Society

Who Gets the Gains?

Private markets mostly benefit rich individuals and big institutions, making it harder for average people to tap into high-growth opportunities. Public markets offer reduced search costs and spread opportunity more broadly. The shrinking public market – which anyone could invest in – widens the gap between the haves and have-nots.

Broader Fallout

When people feel shut out from economic wins, it fuels anger toward Wall Street and regulators. This can lead to unpredictable policy changes that shake up markets and investor plans.

Bottom Line: These market changes create unfair outcomes that could loop back, influencing future rules, trust in the system, and how capital gets raised.

Conclusion: A New Era for Investing

The data shows the public market’s decline is a permanent shift, fueled partly by regulations and offset by the explosion in private options. These private markets have grown fast and pulled in massive funds, changing where investment chances lie.

This matters for:

• How investors divide their money
• What returns they can expect
• Managing cash flow and risks
• Making sure more people can join in on growth opportunities