A year after Russia’s invasion of Ukraine and an inflation rally fueled a bout of market volatility that prevented most initial public offerings in 2022, last week saw a flurry of listings. It is 15 months since there was a busier week, according to Dealogic data.
Five IPOs, including the $638 million offering of solar tech firm Nextracker Inc and the $190 million offering of Chinese sensor maker Hesai Group, were completed last week. In total, the IPOs raised about $1.17 billion in proceeds, up sixfold from the previous week when stock market debuts raised about $193 million, according to Dealogic.
IPO bankers and lawyers said that if the market’s thawing continues, aided by a decline in market volatility and a rise in corporate valuations, they expect several major companies waiting in the wings, including social media firm Reddit and SoftBank-owned chipmaker Arm Holdings, could launch their IPOs in the second half of 2023.
Fed Bank of Atlanta President Raphael Bostic said January’s strong jobs report raises the possibility that the central bank will need to increase interest rates to a higher peak than policymakers had previously expected.
Geopolitical concerns also simmered on the background, with the U.S. preparing to impose a 200 per cent tariff on Russian-made aluminum and U.S.-listed Chinese shares tumbling as Washington’s move to shoot down an alleged surveillance balloon from the Asian nation.
A rout in megacaps like Apple Inc., Amazon.com Inc. and Google’s parent Alphabet Inc., which reported results last week, weighed on sentiment. The group’s reality check came after the Nasdaq 100 approached bull-market territory. Investors will continue to focus on earnings to figure out whether the recent rally was a “bear trap” driven by “fear of missing out,” noted Chris Larkin at E*Trade from Morgan Stanley.
“The major averages have become overbought after their strong January rallies,” said Matt Maley, chief market strategist at Miller Tabak + Co. “We are not trying to say that any short-term pullback will be followed by another strong rally. In fact, we believe that a short-term pullback could — and probably will — turn into another leg lower in the bear market that began just over a year ago.”
JPMorgan Chase & Co. strategist Marko Kolanovic reiterated that stock investors should fade last week’s Fed-induced rally, arguing the U.S. economy’s disinflationary process could just be “transitory.”
The S&P 500 now accurately reflects signs of better-than-expected economic growth and a drop in bond yields, according to Goldman Sachs Group Inc. strategists led by David Kostin. At the same time, higher valuations, lackluster corporate earnings and elevated interest rates mean there’s little room for the rally to extend, they said, a view that was broadly echoed by their counterpart at Morgan Stanley, Michael Wilson.
To Solita Marcelli at UBS Global Wealth Management, the risk-reward trade-off for equities doesn’t look appealing. She continues to recommend that equity investors position defensively and be prepared for additional volatility ahead.
“We remain bearish equities,” said Eric Johnston at Cantor Fitzgerald. “There has been a dramatic change in sentiment and positioning which has gotten much more bullish, making this a tailwind for our bearish view. And while this dramatic change has happened, the outlook for earnings, the Fed, and multiples is unchanged. All of the stock being bought now will just create that much more supply on the way down.”
Now with the path for further monetary tightening in focus, bond investors still broadly expect U.S. inflation to ebb further. The so-called breakeven rate on five-year five-year forwards — a proxy for inflation expectations — slumped to 2.18 per cent on Friday from 2.31 per cent a week prior. It was little changed Tuesday.
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