With bond yields back above 5%, are bonds attractive again?
Shechar Dworski, PhD, CFA, Head of Economics and Director, Macro Strategy
ARE IPO POSTPONEMENTS TELLING US SOMETHING ABOUT THE BROADER MARKET?
Tom Savage, CFA, Portfolio Manager, Arbitrage
Some recent planned initial public offerings from companies like Oura, Firmus Technologies and Holtec Nuclear Corporation have been postponed or delayed. Is this trend telling us something about the broader market?
The index is at record highs, yet the deal calendar is emptying out. At first glance it is paradoxical that the S&P 500 Index is regularly hitting all-time highs while high-profile initial public offerings (IPOs) are getting pulled citing “market conditions.” There are a couple of things this is telling us.
The market is dominated by large-capitalization technology. More specifically, the only thing that matters is Artificial Intelligence, to paraphrase Steve Eisman at our recent PICTON Investments MINDSHIFT event. Outside of the Magnificent Seven, a “rolling correction” is underway: 85% of S&P 500 Index names are more than 10% off their highs, and 59% are more than 20% off. Initial public offerings are risky investments. While the market is at all-time highs, that does not necessarily mean investors’ risk tolerance extends beyond the Artificial Intelligence theme.
Mega-cap offerings may be sucking capital away from smaller ones. Space Exploration Technologies Corp. (SpaceX) went public in June, raising approximately US$86 billion in by far the largest initial public offering in history. Recently, the median initial public offering has raised approximately US$225 million, so SpaceX was the equivalent of roughly 380 “average” offerings. Anthropic is also speculated to go public in November, potentially raising US$75 billion to US$100 billion. With finite investor capital and risk appetite, smaller offerings are likely getting crowded out.
SPACs have historically done well when the initial public offering market is hot. In the short term, the dynamics above have led to lower special purpose acquisition company business combination activity and quality. In the medium term, the silver lining may be that some of these pulled initial public offerings end up using special purpose acquisition companies as an alternative path to going public.
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SUBMIT YOUR QUESTIONShechar Dworski, PhD, CFA, Head of Economics and Director, Macro Strategy
Sam Acton, CFA, Portfolio Manager, Co-Head Fixed Income
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Geoff Phipps, CFA, Portfolio Manager and Trading Strategist PICTON Investments
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All data sourced from Picton Mahoney Asset Management Research unless otherwise cited.
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