US stock indexes fall, but so do new stock issue volumes

What’s new on the stock market in 2022?

Literally not far beyond a sea of ​​red. Initial public offerings have been rare this year as the Federal Reserve seeks to tighten financial conditions and cool inflation to 40-year highs.

Follow-on offers, when public companies sell additional shares to raise cash, have also fallen dramatically, after several monster years of issuing new shares.

Only about $40 billion in new US stocks have been issued so far this year (see chart), compared to more than $1 trillion in the past two years combined, according to EPFR, Informa Financial Intelligence.

U.S. equity issuance slows to a trickle in 2022

EPFR, Informed Financial Intelligence.

This time last year there was $227 billion in new equity issuance, compared to $79.3 billion in the same period of 2020, according to EPFR analyst Winston Chua , who said rare new equity issues could provide some support for stocks, despite greater market turmoil.

The trickle of equity issuance comes as large U.S. corporations have also borrowed less in the bond market in 2022, in part as debt costs rise from pandemic lows.

To see: IPO market outlook ‘hazy’ heading into second quarter as lower year-end yields and war in Europe dampen risk appetite

“There are many reasons why IPOs are down,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, pointing to global instability linked to Russia’s war. in Ukraine, high inflation and rising interest rates as factors.

“There’s also been a lot of talk about a recession,” Frederick said, despite the robust job market. There has also been a painful rout in tech stocks, a key source of mega-IPOs in recent years, and poor performance by “blank check companies” or special purpose acquisition companies, which were in vogue in recent peak pandemic stimulus years. .

“SPACs were huge last year, but most of them didn’t work well,” Frederick said. “With all of these factors, it’s been death by a thousand paper cuts for the IPO market.”

Shares fell for a second straight day on Friday as a fresh batch of corporate earnings largely disappointed. The Dow Jones Industrial Average DJIA,
-2.27%,
S&P 500 SPX,
-2.29%
and the Nasdaq COMP composite index,
-2.14%
each about 2%, according to FactSet.

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