Public markets have plenty of critics these days, but S&P 500 investors might wonder: What’s the problem? The past two years have brought the best returns since the dot-com boom.1
It's a fair question. With nearly 25% gains in 2023 and 2024, public equity investors have plenty to celebrate. Even over the past decade, the 11% annualized returns outpace the index's historical average.2
So why is Jamie Dimon sounding the alarm on public markets? Why is Goldman Sachs urging U.S. equity investors to diversify quickly? And why does David Rosenberg, one of the world’s most respected analysts, see a bubble about to burst?
A few reasons — and we’ll cover them all. But broadly, these concerns stem from a sense that public equities may be declining: fewer companies, a deteriorating mix of businesses, and potentially dangerous concentration.
Let’s dig in.
The most visible concern about public markets is their shrinking pool. U.S. public companies have nearly halved in recent decades, from 7,300 in 1996 to just 4,300 today.3
In his widely-read 2024 shareholder letter, Jamie Dimon called this the diminishing role of public companies in the American financial system. "This trend is serious," he writes. "The total should have grown dramatically, not shrunk."
This decline isn't due to a contracting economy or fewer U.S. companies overall. During the same period, private equity-backed companies exploded from 1,900 to 11,200 — a nearly 500% increase.4
Dimon cites costly regulations, activist shareholders, and the relentless pressure of quarterly earnings as key factors. But whatever the cause, the impact is clear: public market investors now have a far narrower set of opportunities.
Think of today's most exciting companies. Sure, public giants like Nvidia, Meta, and Apple come to mind — but so do SpaceX, OpenAI, and TikTok's parent, ByteDance.
A generation ago, companies of this size and growth trajectory would typically have gone public to raise capital. Now, private markets fund them so efficiently that IPOs may no longer be necessary.5 OpenAI is in talks to raise $40 billion in private funding.6
Many analysts believe investors aren’t just facing fewer public companies, but weaker ones too.
Bloomberg suggests that today’s IPO candidates might simply be “too weak to attract capital in private markets.” When professional investors pass, these companies turn to the broader public for cash.
The declining profitability of small caps tells this story. In 1995, the Russell 2000 Index’s return on equity was 7.8%. Today, it’s roughly 2%. Nearly a third of small public companies lost money last year. Another 20% barely scraped out $1 per share in profits.7
Many analysts believe investors aren’t just facing fewer public companies, but weaker ones too.
But if you're riding the S&P 500, why worry about small caps? Can't you just keep banking on the tech giants?
Maybe, but that leads to a third concern: overconcentration. The S&P 500 is historically top-heavy, with the "Magnificent Seven" tech stocks driving 47% of the index’s total gains.8
Many economists, including Goldman Sachs' research team, doubt these few companies can maintain long-term dominance.
David Kostin, Chief U.S. Equity Strategist at Goldman, puts it bluntly: "If historical patterns persist, today's high concentration forecasts much lower S&P 500 returns over the next decade than would occur in a less concentrated market."
This is the quandary for public equity investors: stick with the Magnificent Seven and bet on historically concentrated risk, or diversify into smaller public companies that are increasingly struggling to perform.
This story isn’t about a shrinking economy. It’s about a dwindling pool of quality assets available to public investors. As Bloomberg writes, the take-private trend will only accelerate, “to the stock market’s detriment and to the growing exclusion of retail investors.”
What do many analysts recommend in response? Diversify. Goldman strategists advise investors not to abandon U.S. public equities but to shift some assets to different strategies.9
Index investing was once considered diversification itself. But with nearly half of S&P returns now concentrated in just seven stocks, investors are being told to look to different assets and regions. Private markets offer one alternative.
Once reserved for institutions and the ultra-wealthy, private investments have become increasingly accessible.10 Accredited investors from all backgrounds can now participate through platforms like Crowd Street. And more people qualify than you expect.
According to SEC data, roughly 24 million U.S. households — 18.5% of the total — meet the accredited investor threshold. Yet only about 5% currently have private market investments.11
Public markets have powered economic growth for decades, for both companies and investors.12 They may keep doing so. But the warning signs are bright enough that experts are telling investors to spread their bets.
Unfortunately, simply buying an index isn’t the diversification safety net it used to be.13
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