Stocks surged and bond yields tumbled after the Federal Reserve signaled further interest rate cuts next year and Chairman Jerome Powell didn't push back against Wall Street's dovish trade.
It's good news for capital-intensive industries such as tech and healthcare, as well as the initial public offering(IPO) market, which is trying to shake off a two-year lull.
As the $S&P 500(.SPX)$ nears a new record, the $NASDAQ 100(NDX)$ and the $DJIA(.DJI)$ have already hit historic highs, and the stock market rally has broadened out from the so-called "Magnificent Seven" names to include other sectors such as small-cap stocks.
Mark Schwartz, EY Americas IPO and SPAC Consulting Leader, said that the pipeline of companies preparing to file for IPOs is growing faster than at any point in the past seven quarters as valuation multiples improve. In the past few weeks, many companies have been on the fence about seriously preparing for an IPO, but they are now jumping in.
When the market will pick up remains a question, partly depending on the decline in the federal funds rate, currently expected to fall by 75 basis points next year, as well as seasonal factors.
Data shows that in the decade before the pandemic, US IPOs raised the lowest average amount of funds in the first quarter, accounting for about half of the funds raised between April and June.
After the much-anticipated September IPO of $ARM Holdings PLC(ARMH)$ failed to fully revive the market, bankers are cautiously optimistic about the return of larger IPOs next year.
Josh Weismer, head of equity capital markets for Americas at Mizuho, said, "The Fed pivot could bring the IPO wave forward to 2024."
The strength of stock bidding in the secondary market, combined with a relatively calm $Cboe Volatility Index(VIX)$ near its lowest level since January 2020, helps create an extremely constructive environment for IPOs.
Not everyone is an optimist. Larry Aschebrook, founder of G Squared, is less optimistic about the near-term potential for IPOs, citing geopolitical uncertainty and a series of elections in 2024 as potential headwinds.
The window will open between Thanksgiving and Christmas 2024. IPOs will get more active by 2025.
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