US market shrinks for the first time since 2009

The number of stocks on the US stock market has reached its lowest level since 2009 as companies cut back on share sales and buy back equity at the fastest pace in four years

As a result, Standard & Poor's 500 Index divisor, a measure of outstanding shares, fell by 0.6% last quarter, its first drop since March 2009, Bloomberg reports.

Data from stock market research firm Birinyi Associates revealed Amgen, Hewlett-Packard and 1,971 other US companies repurchased $397bn of stock last year, while they issued $169bn of new equity.

The shrinking number of stocks has pushed valuations so low that executives would prefer to buy back shares rather than spend the cash to expand, according to analysts. There are now concerns the dwindling growth prospects for US companies will limit upside and put off investors.

Equity valuations have dropped to four year lows, according to Bloomberg data.

The S&P 500 Health Care Index trades for 12.7 times profits, down from 17.4 at the end of 2007, while the P/E ratio on the S&P 500 Information Technology Index has dropped to 14.4 from 25.

Two groups announced the most buybacks among 10 industries in the US last year, with plans to repurchase $180bn of shares combined, according to Birinyi Associates.

The world's largest biotechnology firm Amgen bought 9.5% of its outstanding shares last month for about $5bn. The company issued $6bn of debt with an average coupon of about 3.35% to help fund the buyback.

Meanwhile, technology firm Hewlett-Packard spent $10.1bn to repurchase shares in the fiscal year ended October 31 2011. The shares trade for 6.6 times profit, compared with an average of 15.3 during the past decade.