The Incredible Shrinking Stock Market

Is the investable universe getting smaller, and does it matter?

By Hank Spain

If you watch the news or listen to the armchair quarterback stock picker (also known as the stock picker at cocktail parties because there’s always one), the stock market is bursting with investing opportunities. But in reality, the stock market is shrinking.

Take the Wilshire 5000 Index, created to capture the entire U.S. equity market. At its peak, it grew to more than 7,000 companies. And today? Approximately 3,400, a slow decline that's been underway since the late 1990s.

The market isn't shrinking in value; it's shrinking in breadth. There's more value to be had than ever; there are just fewer and fewer stocks steering the market. Increasingly, that value is concentrated in a small number of giants known as the Magnificent 7:

• Alphabet (Google)

• Amazon

• Apple

• Meta Platforms (Facebook, Instagram)

• Microsoft

• Nvidia

• Tesla

Even a "diversified" index fund isn't as diversified as it sounds. Buy an S&P 500 fund today, and you might picture your money spread evenly across 500 companies, but with the Mag 7 making up such a large slice of the index, roughly a third of your money is really riding on just seven stocks. A portfolio that leans on a handful of names carries more risk than its "diversified index fund" label suggests.

So how did we get here?

Several structural changes have led us to this new era.

The Rise of Private Capital

Private equity and venture capital now provide enormous amounts of funding, allowing companies to stay private longer or even permanently.

Mergers & Acquisitions

Corporate consolidation has significantly reduced the number of public companies.

Fewer IPOs

The pipeline of new public companies has slowed dramatically compared with prior decades.

Stock Buybacks

A buyback is a company using its own cash to purchase its own shares on the open market and retire them. Fewer shares in circulation mean each remaining share represents a slightly larger piece of the company, a way of returning value to shareholders that complements dividends. 

The scale today is significant: S&P 500 companies repurchased about $1 trillion of their own stock in 2025, and returned roughly $1.57 trillion in total once you add dividends. Buybacks now function as a co-equal partner to dividends in total shareholder return (while shrinking the supply of shares).

But what about all those big IPOs coming?

That’s a fair question. SpaceX, Anthropic, OpenAI… there's a once-in-a-lifetime generation of companies that could go public, and any one of them would make a big splash. IPOs are episodic; buybacks and M&A are continuous. A handful of blockbuster debuts simply can't outrun the steady, everyday shrinking of supply.

Why This Matters to Your Financial Plan

That "diversified" index fund you own? Thanks to the Magnificent 7, it's more concentrated than the label suggests, which makes deliberate rebalancing matter more than it used to. Meanwhile, a real chunk of the economy's best growth now happens off the public exchanges, which is why private investments (private equity, venture, private credit) are showing up in more diversified portfolios. And the shrinking supply of shares, paired with steady demand, is a genuine long-term tailwind for valuations. A reason to stay disciplined rather than reactive.

Now What?

Instead of disappearing, the stock market is changing shape. More value, fewer stocks, and a handful of giants carrying much of the weight. Even with headline IPOs on the horizon, the forces driving this shift are structural. Understanding what you actually own—and whether your portfolio reflects your long-term plan rather than just today's market—has become more important than ever.

At Spain & Smith Wealth Advisors, we believe investment decisions should always be made within the context of a comprehensive financial plan. If you'd like to talk through how today's changing market fits into your own long-term strategy, schedule a no-obligation conversation with a fee-only fiduciary advisor. Call 216-539-0079, email info@spainsmith.com, or get in touch online.

Frequently Asked Questions

1. Is the stock market actually shrinking?

The stock market is not shrinking in terms of total value. Instead, the number of publicly traded companies has declined, meaning market growth is increasingly concentrated among fewer companies. While there are fewer stocks available for investors to buy, the largest companies have grown significantly in size and influence.

2. Does owning an S&P 500 index fund still provide enough diversification?

An S&P 500 index fund still provides exposure to hundreds of companies, but investors should understand that it is not an evenly weighted portfolio. Because the largest companies now represent a significant portion of the index, performance is increasingly influenced by a small group of stocks, including the Magnificent 7.

3. Should investors consider private investments to diversify their portfolios?

Private investments, such as private equity, venture capital, and private credit, may provide exposure to companies that are not available through traditional public markets. However, they also come with different risks, liquidity considerations, and investment requirements. Whether they make sense depends on an investor’s financial situation, objectives, and overall portfolio strategy.

About Hank

Hank Spain, ChFC®, CLU®, is the Founder of Spain & Smith Wealth Advisors, located in Pepper Pike, Ohio, leveraging over 45 years of financial services experience to provide individuals, families, and business owners with coordinated, long-term planning. Drawing on a robust background at firms like Wells Fargo Advisors and Carnegie Investment Counsel, he specializes in a relationship-driven approach centered on comprehensive financial mapping. Today, his practice is dedicated to helping clients bring greater clarity, alignment, and confidence to their financial lives.

Investment advice offered through Stratos Wealth Advisors, LLC, a Registered Investment Advisor.

Stratos Wealth Advisors, LLC, and Spain & Smith Wealth Advisors are separate entities.