The companies raised more than $ 170 billion through initial public offerings on U.S. stock exchanges in 2021, according to data compiled by Bloomberg. IPOs are so strong they’re on track to surpass last year’s $ 180 billion, the most since at least the 2008 financial crisis.
But as the market has voraciously consumed the start of 2020, tastes are changing. The Renaissance IPO ETF (symbol IPO), which tracks new state-owned companies, is down 9.3% this year after soaring 107% in 2020. While the market as a whole has held up so far, there is still a threat. presents a seemingly endless supply of stocks crushing the precious demand. Yes, the S&P 500 is up almost 10% since the start of the year. But it has fallen almost 2% from the all-time high it reached earlier this month.
“There’s definitely something about the idea that demand for stocks is moderating,” said Nicholas Colas, co-founder of DataTrek Research. “The IPO window is always wide open until it closes with a bang. This makes it a part of the market that corrects itself automatically. “
The flow of funds reflects this diminishing appetite. While exchange-traded funds have taken in $ 288 billion since the start of the year, the largest – the $ 355 billion SPDR S&P 500 ETF Trust (ticker SPY) – lost $ 12.5 billion.
Even with IPOs at a record pace, the recent stock market turmoil is starting to scare off some potential issuers. At least two planned lists have been delayed this month due to volatility. If this were to become a trend, or if the debut started to be canceled, that would be a worrying sign, Colas said.
“When deals start to close, you’ll know the supply side of the market equation is starting to reset,” Colas said.
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The bulk of the IPO offering comes from a boom in special purpose acquisition companies. Blank check lists represent more than half of the market this year, according to data compiled by Bloomberg.
But the PSPCs have struggled in recent weeks. The SPAC IPOX index, which tracks the performance of a large group of blank check companies, has plunged nearly 23% from its peak in mid-February.
Beyond the imbalance between supply and demand, there is also a problem with the types of businesses that are entering the market. According to Kim Forrest, chief investment officer of Bokeh Capital Partners, many of the recent IPOs have been tech companies with weak fundamentals.
“The problem of supply and demand is real, but it is exacerbated by the fact that the majority of companies are in the tech industry – and the kind of technology that is ‘not available’ for most. ratios considered by investors, ”said Forrest. “A lot of this year’s IPOs have indefinite time frames for profit.”
– With the help of Lu Wang and Drew Singer