- The first massive Airbnb and DoorDash rallies suggest that the IPO market is ahead of the curve, senior strategists said Thursday.
- Airbnb climbed 115% when it first started trading publicly on Thursday. DoorDash closed 86% higher on its debut on Wednesday.
- The day one climbs reveal “the euphoria and greed” last seen in the market during the dot-com bubble of the late 1990s, said Paul Schatz, president and chief investment officer of Heritage Capital.
- “It’s a silly season” and investors have to differentiate between “a big company and a great price or value,” Rich Steinberg, chief market strategist at The Colony Group, told Business Insider.
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The colossal post-IPO pop of Airbnb and DoorDash reveal excruciating euphoria in the stock market, senior strategists have said.
Some of the biggest initial public offerings of the year came this week, adding to an already record-breaking year for market debuts. DoorDash climbed 86% when it started trading on Wednesday after raising $ 3.2 billion from its bid the day before. Airbnb jumped 115% when it started trading Thursday afternoon, pushing its market cap above $ 100 billion and raising $ 3.5 billion.
The first-day rallies, while extraordinary, show “the euphoria and greed” that has probably not been seen in the stock market since the dot-com bubble of the late 1990s, said Paul Schatz, president and CEO. investment director of Heritage Capital. Many investors rush to new stocks wanting to enter at any cost, but those massive IPO rebounds usually give way to equally disproportionate losses, he added.
“It’s a silly season,” Rich Steinberg, chief market strategist at The Colony Group, told Business Insider. “Investors need to differentiate between a big business and a great price or value. ”
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Both strategists attributed some of the euphoria to near-zero interest rates that are expected to stick around for the next three years. The Federal Reserve’s plan to keep rates at historically low levels leaves investors with fewer places to put their money as the policy wiped out Treasury yields at the start of the pandemic. The Fed’s safety net in the corporate credit market put similar pressure on bond yields.
The combination of near zero interest rates, a “liquidity tsunami” and hundreds of billions of dollars from unallocated investors fueled the two buying frenzy, Schatz said.
The booms of the week may just be the beginning. Investors could face a “total and utter mania” in the IPO market in the first half of 2021, as more companies seek to exploit the market as demand remains strong, the president said from Heritage Capital. Investors should avoid trying to time these volatile starts and instead be patient until stock prices better reflect company fundamentals, he added.
“Being the last to buy the opening of an IPO, living up to this speculative excess in some of these names, doesn’t usually end well,” Steinberg said.
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