LIVE MARKETS-IPO uptick a bullish sign for stocks

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IPO UPTICK A BULLISH SIGN FOR STOCKS

Initial Public Offerings (IPOs) are the “life blood of public equity markets,” which makes the recent flurry of IPOs a bullish sign for stocks overall in the long run, according to Nicholas Colas, co-founder at DataTrek Research.

“An open IPO window says a lot about general market sentiment,” Colas said in a note. “Most private companies cannot go public anytime they want. Rather, they must wait for when investors are bullish enough to entertain the idea of buying a company with no public market track record. This is known as the ‘IPO window’, and it is a historically proven way to assess the proverbial ‘animal spirits’.”

Peak IPO years have coincided with periods of investor optimism: the record-breaking 677 IPOs in 1996 preceded the dot-com boom, while 2021's 311 IPOs marked the speculative peak following pandemic-era monetary stimulus.

This year the projections are for 275-300 IPOs. That is well above recent years (54 in 2023, 72 in 2024) “but not a worrisomely high count.”

Meanwhile, the reputation of IPOs as being disappointing long-term performers is unfair as their returns mirror those in the broader stock market.

“Most IPOs don’t outperform over the long run because most stocks don’t outperform over the long run,” Colas notes. “Once they get their average 10 percent 30-day bump, it is true that they often become disappointing performers. That, however, is not a function of the IPO process, but rather the market’s amazing ability to price stocks correctly.”

The eight most valuable companies globally - worth $22.1 trillion today - all emerged from IPOs since 1986 and have generated an 18-fold return from the original $1.2 trillion invested across all offerings since 1980, DataTrek found.

These companies include Nvidia NVDA.O, Microsoft MSFT.O, Apple APPL.O, Alphabet GOOGL.O, Amazon AMZN.O, Meta META.O, Broadcom AVGO.O and Tesla TSLA.O.

"We strongly believe the more IPOs the better for long run returns, and the window is thankfully open once again,” Colas said.

(Karen Brettell)

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