Wall Street's Frozen IPO Market Thaws as Companies Take Advantage of Stock Rally

Key Takeaways:

Following the highly anticipated and successful listing of Nextracker, other renewable energy companies are eager to make their debut on the US stock market. Tel Aviv-based Enlight is one such company; JPMorgan is lead advisor on both deals.

The green energy sector is flourishing, thanks in large part to the Inflation Reduction Act, and biotech companies with promising drug trials are also in high demand. Retail brands that have weathered the current economic climate are also a hot commodity and parts of the financial sector like insurance.

Exciting rumors are circulating about some of the biggest names in the tech industry who are waiting in the wings to list on the stock market. Delivery giant Instacart, payments processor Stripe, Fortnite owner Epic Games, sports clothing retailer Fanatics, and digital banking provider Chime are all rumored to be making their stock market debut soon.

According to a well-informed banker, Instacart's listing could happen as soon as mid-year, making it one of the most eagerly anticipated listings of the year. On the other hand, Stripe's management may opt to remain private for a bit longer, the same banker added.

Investors are on the edge of their seats waiting for these companies to make their move, as they offer exciting opportunities to invest in some of the biggest names in the tech industry. Get ready, the next wave of listings is about to hit Wall Street!

The initial public offering (IPO) market on Wall Street, which was frozen for months due to the pandemic and economic uncertainty, is now starting to thaw. Companies are taking advantage of the recent stock market rally and improving economic conditions to go public.

According to recent data, the number of companies going public in the United States has increased significantly in the past few months. In January of this year, 49 companies went public, which is more than double the number that went public in the same month last year.

This increased activity in the IPO market is a positive sign for the economy as a whole. Companies going public raise capital to fund growth, create jobs, and drive innovation. They also provide investors with new opportunities to diversify their portfolios and participate in the growth of the companies they invest in.

The recent stock market rally has played a big role in the revival of the IPO market. With stock prices at record highs, investors are eager to invest in new companies and enjoy the benefits of a strong market. Companies are taking advantage of this demand by going public and raising capital at higher valuations.

In addition to the stock market rally, the overall improvement in the economy has also contributed to the thawing of the IPO market. With vaccine distribution increasing and the economy starting to reopen, there is more optimism about the future and less uncertainty. This is making it easier for companies to go public and raise capital.

The technology sector has been one of the biggest beneficiaries of the thawing IPO market. Tech companies account for a significant portion of the companies that have gone public in recent months. This is due in part to the growing demand for technology products and services, as well as the resilience of the tech sector during the pandemic.

The Wall Street IPO market is finally starting to thaw after months of being frozen due to the pandemic and economic uncertainty. Companies are taking advantage of the recent stock market rally and improving economic conditions to go public and raise capital. This is a positive sign for the economy and for investors, as it provides new opportunities for growth and innovation.

What Does Statistics Indicate About The Wall Street IPO?

The Wall Street's frozen IPO market was significantly impacted by the COVID-19 pandemic in 2020, with only 199 companies going public in the US, a 38% decrease from the previous year. The average size of IPOs also declined, with the average IPO raising $112 million compared to $174 million in 2019, and the technology sector was the hardest hit with only 30 tech companies going public. However, the overall performance of IPOs in 2020 was strong, with an average return of 19.7%. In 2021, the IPO market showed signs of recovery, with the number of IPOs increasing and the technology sector accounting for a significant portion of IPOs. The overall performance of IPOs in 2021 has also been strong, with an average return of 25.7%.

The largest IPO on Wall Street in the past four months has closed, giving bankers confidence that the market for newly listed firm shares is reviving.

According to sources speaking to CNBC on Wednesday, the solar technology company Nextracker raised $638 million by selling around 15% more shares than anticipated.

According to Michael Wise, vice chairman for equity capital markets at JPMorgan Chase, the listing, which went public on Thursday, demonstrates how this year's stock market recovery has revived mutual fund and hedge fund managers' interest in investing in new firms. In lunchtime trade, shares of Nextracker increased by 25%.

The so-called IPO window on Wall Street, which enables businesses to easily access investors for new shares, has been mostly closed for the previous year. As the Federal Reserve increased interest rates last year, revenues from public listings fell 94% to their lowest level since 1990. In 2022, the disruption eliminated a significant source of fees for investment banks, resulting in widespread layoffs throughout the sector. Private enterprises were also compelled to reduce staff in an effort to "stretch their runway."

To defer raising funds or going public until the market circumstances improve, private enterprises stretch their budgets, generally by decreasing expenditures like personnel.

In a phone conversation with CNBC, Wise said, "The window looks to be broken open right now. "Investors and issuers are back and engaged as a result of the good market performance at the start of this year; numerous firms are currently through pre-IPO, testing-the-waters activities." 

Other renewable energy companies, including Tel Aviv-based Enlight, want to list in the United States shortly after the Nextracker offering, according to bankers. JPMorgan, located in New York, is the primary adviser on each of those transactions.

Selective Bias

According to Andrew Wetenhall, co-head of equity capital markets at Morgan Stanley in the Americas, "increased degree of investor involvement around bringing IPOs to market" is also occurring now than it did for most of last year.

According to Dealogic statistics, the top three global advisors on public listings are Morgan Stanley, JPMorgan, and Goldman Sachs.

But not just anyone can access the market. Investors no longer have faith in the prospects of unprofitable businesses, and many 2020 and 2021 tech listings still have negative value.

Green energy, made possible in part by the Inflation Reduction Act, biotech firms with promising drug trials, retail brands that have fared well in the present climate, and portions of the financial industry like insurance are currently in vogue, according to bankers.

The recurring theme is that newly listed businesses must be profitable and operate in industries that are doing well, or at the very least are not very vulnerable to interest rate increases. 

Wetenhall added, "This market is opening; it is not wide open. "In this atmosphere, the parties that should bring their transactions likely have a set of characteristics that meet the mood of the investors."

Instacart, Stripe

Johnson & Johnson has filed to take its Kvue consumer health company public, following a pattern of IPOs led by spinoffs. This will be a greater test of the market. This is because, according to a banker, investors have been clamoring for bigger listings and Kenvue's estimated market capitalization is above $50 billion. According to a different lender, the listing might take place as early as April.

Other businesses, like Instacart, a leader in delivery, Stripe, the owner of Fortnite, Epic Games, Fanatics, and Chime, a provider of digital banking, are on the verge of emerging.

A banker with knowledge of the issue said that Instacart's IPO may occur as soon as midyear. However, this banker noted that with Stripe, management may look into ways to continue being a private company.

Particularly for the majority of tech and fintech businesses, which are currently mostly out of favor, an overall comeback to IPO listings is most likely to occur in the second half of the year at the earliest.

Another banker who wished to remain anonymous remarked, "Tech has been pretty silent." "I don't believe that will recover for a time."

Inflation Data Hotly Anticipated Lifts Wall Street

As Wall Street waits for a report to reveal if inflation is continuing to decrease or maybe preparing the market for more pain, stocks are gaining on Monday. 

Before Tuesday's news on consumer inflation throughout the nation, the S&P 500 was up 0.9%. It just experienced its worst week in almost two months.

At 11:05 a.m. Eastern time, the Dow Jones Industrial Average was up 292 points, or 0.9%, at 34,161. The Nasdaq composite was up 1.2%.

For more than a year, Wall Street has been experiencing jarring movements as a result of rising inflation and the Federal Reserve's response, which has been to raise interest rates. To combat the worst inflation in generations, the Fed aggressively increased rates to their highest point since the start of the Great Recession. High rates can stop inflation, but doing so comes with the danger of a severe economic downturn and a decline in investment prices.

According to forecasts made by economists, the inflation rate dropped to 6.2% in January. That would be a decrease from the peak of more than 9% in the summer and from 6.5% a month prior. What the numbers reveal about the costs of non-housing services like haircuts or flights may be more significant than the aggregate figure. While it has started to decline in other places, inflation there has remained stubbornly high.

An unexpectedly poor number would increase concerns that the Federal Reserve will maintain rates more rigidly than anticipated, which may cause further harm to Wall Street. Meanwhile, results that were less warm than anticipated may rekindle expectations for the Fed to ease monetary policy that were growing earlier this year.

The Fed has been stating that it intends to keep rates higher for longer in order to guarantee that the work is done on inflation, which caused Treasury yields to increase last week as investors shifted their projections for rates closer to the Fed's.

In advance of the inflation data on Monday, yields remained largely stable. The yield on the 10-year Treasury, which influences mortgage and other significant lending rates, decreased from 3.75% late Friday to 3.73%. The two-year yield, which is more likely to fluctuate in response to Fed predictions, was at 4.53% and almost at its highest level since November.

A distinctly underwhelming profit reporting season is the backdrop to all the concerns about inflation and rates. According to FactSet, S&P 500 companies are expected to record a nearly 5% decline in earnings for the last three months of 2022 compared to the same period the previous year.

According to Credit Suisse strategists, this is going to be the worst earnings reporting season outside of a recession in the last 24 years. With lowered predictions, skepticism is now growing over the first quarter of 2023's results.

Morgan Stanley strategists are wary of the gain equities have made since the year's beginning, even though they gave some of that back last week. One of the reasons is the ongoing decrease in corporate earnings. The S&P 500 has gained 7.5% so far in 2023, but it is still in a "bear market" after dropping more than 20% from its peak the previous year.

The strategists under Michael Wilson stated in a research that the price movement "is not indicative of the worsening fundamentals or the fact that the Fed is increasing amid an earnings recession – forces that should eventually decide the lows for this bear market later this spring." "In our opinion, risk-reward is as bad as it's ever been."

The majority of this season's earnings reports have already been submitted, with major merchants and utilities reporting at the end. There will be reports from Southern Co., Coca-Cola, and Kraft Heinz this coming week.

Even though Fidelity National Information Services reported somewhat more earnings and sales for its most recent quarter than anticipated, the company fell 14.6%. FIS said that it will spin off its Worldpay merchant company after purchasing it in a deal less than four years ago, but it's prediction for 2023 profitability fell short of Wall Street's expectations.

Henry Schein, a supplier of medical supplies and services, came out on top. After announcing a plan to buy back up to $400 million of company stock, it increased by 2.3%. Such initiatives are popular with investors since they immediately increase shareholder wealth.