The summer months are usually relatively benign for markets as investors opt for sandbars in lieu of bar charts, but that’s not happening this year.

The US stock market is shrinking, and investors are pulling their money out at a near-record pace as storm clouds gather over the US economy.

That means the titans of Wall Street may have to contend with choppy water as they cruise toward their Nantucket getaways this year.

What’s happening: “Sell in May and go away” is a popular Wall Street-ism that describes the trend of investors closing up shop and sorting out their portfolios ahead of vacations. It also alludes to the historical underperformance of stocks during the summer months.

But recent trading flows show that something larger is at play this year.

Bank of America analysts said on Tuesday that their clients have now been large net sellers of US stocks for five weeks in a row. Just last week, they sold off $5.7 billion more in stocks than they purchased, the highest outflow since last July.

Bank of America recorded the second largest sell-off of tech stocks in their history last week. And while one week does not a trend make, it does stand in stark contrast with the Magnificent Seven fervor that ensnared Wall Street mere months ago.

Low volumes, eventful markets: The tides appear to have shifted and the usual summer doldrums are nowhere to be found.

“Summer 2024 may prove volatile, with momentum stalling amid policy uncertainty,” wrote Morgan Stanley Wealth Management Chief Investment Officer Lisa Shatlett in a note this week.

“Economic crosscurrents have left the [Federal Reserve] more tentative regarding rate cuts, amplifying the potential significance of each data point as debate continues over the degree of policy restriction,” she said.

A series of weak Treasury auctions could also roil markets, not to mention the ongoing and closely contested upcoming presidential election. Market volatility in an election year tends to pick up in October, but low trading volume and large potential catalysts could mean big swings in the weeks to come.

We’ve already seen whiplash-inducing moves in the Dow over the past two weeks as traders reacted to unexpected economic data.

A shrinking market: The stock market isn’t the economy (for the most part). And its influence over the macro environment has been fading for some time.

At their peak in 1996, there were 7,300 publicly traded companies in the US. Today there are about 4,300.

Nearly 90% of all firms with revenues greater than $100 million are now private, said Torsten Slok, chief economist at Apollo Global Management. Privately-owned firms also account for nearly 80% of all US jobs openings.

“Bottom line: Public markets are a small part of the overall economy,” he said.

Putting it together: A shrinking market and retreating investors indicate that the appetite for risk in the US is quickly fading.

Fear is currently driving the US market, according to CNN’s Fear and Greed Index.

Years of elevated interest and inflation rates, a chaotic political and geopolitical environment and general economic uncertainty may be sending both executives and shareholders into retreat.

What it means: That’s worrisome, according to JPMorgan CEO Jamie Dimon.

“The total [of public companies] should have grown dramatically, not shrunk,” wrote Dimon in his annual shareholder letter earlier this spring.

The number of private companies in the US backed by private equity firms, meanwhile, has grown from 1,900 to 11,200 over the last two decades, according to JPMorgan data.

Dimon’s company, of course, makes a huge amount of money from taking companies public, so he’s not exactly an impartial observer. But Dimon said his concerns are broader than JPMorgan’s bottom line: If this trend continues, our understanding of the US economy could become hazier, he argued.

“This trend is serious,” warned Dimon on Monday. “We really need to consider: Is this the outcome we want?”

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