2022 has been a dismal year for initial public offerings (IPOs). And I think that’s a good thing.
Generally speaking, the fall months are supposed to be the busiest time in the finance world, with a flurry of new offerings, mergers & acquisitions, and debt raises. But this year has been anything but. IPO volume fell to $1.6 billion in October, marking a 95% year-over-over decline and the weakest showing since 2011. M&A performance was not much better, with total deals plummeting 43% to $219 billion (for September and October).1
This sizable decline in fundraising marks a dramatic shift from 2021 when IPOs (including SPACs) raised over $300 billion, which was almost double the previous record set…the year before. Private equity also saw massive capital flows, with investors pouring $93 billion into early-stage and ‘seed-stage’ startups.
__________________________________________________________________________
Should You Be Bullish? Get the Answer with Our Just-Released Report!
Instead of basing your investment decisions on emotionally-driven headlines, I recommend focusing on fundamental drivers. To help you do this, I am offering all readers our just-released December 2022 Stock Market Outlook report. This report contains some of our key forecasts to consider such as:
- What fundamentals are U.S. stock markets pricing in?
- Setting U.S. return expectations for 2023
- Zacks forecasts at a glance
- What’s ‘fair value’ on the S&P500?
- And more…
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
IT’S FREE. Download the Just-Released December 2022 Stock Market Outlook2
_________________________________________________________________________
We know now that many of these companies didn’t do well or outright failed. In the traditional IPO world, of the 384 companies that went public in 2021, 255 ended the year trading below their offer price.3 In the private markets, we saw investors sometimes pouring millions of dollars into companies that didn’t even have a product or a staff – just a big idea. Remember when investors were paying millions for highly speculative digital art, or NFTs? Also consider the state of the cryptocurrency markets today, when a bankruptcy headline is a daily occurrence.
The fact that froth is being drained from the markets is a good thing, in my view. Excess liquidity in the markets kept moving investors further onto the risk curve in hopes of bigger returns, and any time that happens, there is usually a reckoning waiting at the other end. We’re seeing that now in the form of a capital drain for companies with negative cash flow, and at the riskiest end of the curve, in the form of bankruptcies, debt defaults, and an implosion of the crypto markets.
By some estimates, we could see some 2,000 credit-rating downgrades and hundreds of junk bond defaults in the 2023-2024 credit cycle. The highest that missed junk-debt payments have ever reached is $200 billion in 2008 and 2009, and I believe that record will be broken since so much new junk debt was issued in the heyday following the pandemic.
To understand why I think debt defaults and rising caution in the IPO markets are a good thing, an investor simply needs to think back to the 2000 – 2002 tech bubble and the 2008 Global Financial Crisis. Investors were overpaying for startups in 1999 and 2000 like they were in 2021, and the IPO market in the second half of 2008 and the first half of 2009 was among the worst in history. Proceeds from IPOs were less than $1 billion from July 2008 to March 2009, a dismal figure just like we’re seeing today. But remember what else happened in March 2009 – a big new bull market was entering its first year.
Bottom Line for Investors
When investors see a flood of IPOs and billions of dollars flowing to speculative asset classes and startups with negative cash flow, the response unfortunately is not to run for the hills. Instead, investors can’t help feeling the ‘fear of missing out,’ which often lures even the most disciplined to get in on the action. Many end up making risky bets at just the wrong time, and as we’re seeing in the headlines today, the result can be heavy losses in the riskiest corners of the capital markets.
But when we start to see the opposite happen—i.e., enthusiasm for risky companies and asset classes dries up alongside investor capital – I tend to view it as the market washing out excesses, which oftentimes means that great companies are trading at attractive prices relative to expected future cash flows. To me, that’s bullish.
To help you navigate this market, I am offering all readers our Just-Released December 2022 Stock Market Outlook Report. This report will provide you with key forecasts along with additional factors to consider, such as:
- What fundamentals are U.S. stock markets pricing in?
- Setting U.S. return expectations for 2023
- Zacks forecasts at a glance
- What’s ‘fair value’ on the S&P500?
- And more…
If you have $500,000 or more to invest and want to learn more about these forecasts, click on the link below to get your free report today!
Disclosure
1 Wall Street Journal. November 6, 2022. https://www.wsj.com/articles/raising-money-on-wall-street-hasnt-been-this-hard-in-a-decade-11667730621
2 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion.
3 Nasdaq. 2022. https://www.nasdaq.com/articles/a-record-year-for-ipos-in-2021
4 Zacks Investment Management reserves the right to amend the terms or rescind the free-Stock Market Outlook Report offer at any time and for any reason at its discretion.
DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Any projections, targets, or estimates in this report are forward looking statements and are based on the firm’s research, analysis, and assumptions. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and other sources may be required to make informed investment decisions based on your individual investment objectives and suitability specifications. All expressions of opinions are subject to change without notice. Clients should seek financial advice regarding the appropriateness of investing in any security or investment strategy discussed in this presentation.
Certain economic and market information contained herein has been obtained from published sources prepared by other parties. Zacks Investment Management does not assume any responsibility for the accuracy or completeness of such information. Further, no third party has assumed responsibility for independently verifying the information contained herein and accordingly no such persons make any representations with respect to the accuracy, completeness or reasonableness of the information provided herein. Unless otherwise indicated, market analysis and conclusions are based upon opinions or assumptions that Zacks Investment Management considers to be reasonable. Any investment inherently involves a high degree of risk, beyond any specific risks discussed herein.
The S&P 500 Index is a well-known, unmanaged index of the prices of 500 large-company common stocks, mainly blue-chip stocks, selected by Standard & Poor’s. The S&P 500 Index assumes reinvestment of dividends but does not reflect advisory fees. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor. An investor cannot invest directly in an index.
The Russell 1000 Growth Index is a well-known, unmanaged index of the prices of 1000 large-company growth common stocks selected by Russell. The Russell 1000 Growth Index assumes reinvestment of dividends but does not reflect advisory fees. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks, as well as limited partnership interests. The index includes all Nasdaq-listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debenture securities. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Dow Jones Industrial Average measures the daily stock market movements of 30 U.S. publicly-traded companies listed on the NASDAQ or the New York Stock Exchange (NYSE). The 30 publicly-owned companies are considered leaders in the United States economy. An investor cannot directly invest in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The Bloomberg Global Aggregate Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.
The ICE Exchange-Listed Fixed & Adjustable Rate Preferred Securities Index is a modified market capitalization weighted index composed of preferred stock and securities that are functionally equivalent to preferred stock including, but not limited to, depositary preferred securities, perpetual subordinated debt and certain securities issued by banks and other financial institutions that are eligible for capital treatment with respect to such instruments akin to that received for issuance of straight preferred stock. An investor cannot invest directly in an index. The volatility of the benchmark may be materially different from the individual performance obtained by a specific investor.