Mark Hulbert, writing for MarketWatch, references some research indicating that companies have been issuing a ton of shares in the last few months:
In fact, firms have recently issued far more shares of their stock (either through initial public offerings or secondary offerings) than they did even in the go-go years of the late 1990s and at the top of the Internet bubble in early 2000....
Prior to May, according to TrimTabs Investment Research, the highest level of share issuance in a given month was $38 billion. May blew that record out of the water, with a monthly total of $64 billion.
Furthermore, that blistering pace has continued during the first two weeks of June, according to TrimTabs.
How bad an omen is this corporate eagerness to offer its shares to the investing public? Looking back through recent history, TrimTabs found that there have been just 12 months since 1998 in which total new corporate offerings totaled at least $30 billion. The average return for the S&P 500 index over the 90 days following those months was a loss of 4%....
The recent surge in the supply of shares has also caught the attention of Ned Davis, the eponymous head of Ned Davis Research. He has found through his research that it is optimal not to focus on monthly totals but instead on a rolling 13-week window. On this basis, according to Davis, recent corporate issuance has been exceeded historically only by two other occasions -- early 2000 and early 2008.
Those were "not great times to buy stocks," Davis notes dryly.
Davis also draws an even more ominous parallel to the recent corporate rush to sell stock: "This high level of [recent] supply is one of the key characteristics of the monster rally in November 1929 - April 1930."
There are a couple things to keep in mind when reading stuff like this. These numbers are not adjusted for inflation so a larger number now doesn't necessarily mean it is somehow worse (in this case, the issuance is probably high even in real terms but I'm just bringing this up as a general remark.) Secondly, history never repeats...it only rhymes ;)
It should be obvious why there are ton of shares being issued: bank re-capitalizations. There have also been some big capital raising by distressed companies and over-leveraged commodity businesses. The real question is whether it will continue or whether this is a one-off event. If the issuers, especially the financial companies, keep coming back to the market then it is very bearish. All the capital that flows into the market will be sucked up by them.
Even if it is a one-off time period, there are some negative consequences (but it's not clear how negative they are.) As Ned Davis suggests, the market rallied hard from late 1929 to early 1930 while companies were issuing shares, but ended up with a long decline that was even worse than the 1929 crash. However, one shouldn't blindly compare the present to the 1930's. The long decline after 1930 was due, primarily, to bank runs and a repeat will only occur if banks are inadequately capitalized right now. The US government, based on their analysis of stress tests, believe that banks are fine. I don't understand banking or accounting very well and my guess is that most financial institutions will be fine, as long as we don't end up with massive losses on non-residential real estate. That is, as long as losses from commercial real estate, credit card loans, and so on, are limited, a repeat of the 1930's with spectacular bank runs seem remote (even if losses are large, bank runs only seem likely in countries like Ireland, Britain, and the like, because the banks there are very large relative to the government whereas that's not really the case in America.)
It remains to be seen what the market thinks of all this share issuance. Future returns will be lowered when shares are issued—profit pie divided by more—but it depends how undervalued assets are.