The Last Times IPO Volume Was This High Were 1929 and 2000. Should That Scare You?
This year's swell of fundraising through new public offerings hints at a kind of dangerous overconfidence we've seen before.
Overview
Smart investors know to watch out for bear markets. Wise investors, however, know the signs of such setbacks aren't always obvious. Sometimes you need to keep your eyes peeled for subtle hints of trouble.
Harvard University economist Xavier Gabaix thinks we may be seeing one of those hints right now. He's observed that investors often buy into initial public offerings -- like the recent one from Space Exploration Technologies (NASDAQ: SPCX) (aka SpaceX) and the impending ones from OpenAI and Anthropic -- with money from the sale of other stocks. His number-crunching shows that historically, for every $1 removed from the market, the total market cap of the stock market falls by $5. Investment advisory outfit GMO performed a similar analysis and got a similar (but slightly worse) outcome.
Details
And there's no denying that public offerings are flowing in earnest now. J.P. Morgan Private Bank, the wealth management division for JPMorgan, predicts a total of $260 billion will be raised this year through the issuance of newly minted stocks. That nearly eclipses the post-pandemic fundraising surge of 2021, when companies rushed to capitalize on the rapid economic recovery then underway as well as on a market that was receptive to new publicly traded companies at any price. The last time we got anywhere close to these inflation-adjusted levels was back in 1999-2000, right before the dot-com crash. Before that, you have to go back to 1929 to see anything quite like what's happening now. Of course, that's the year Black Tuesday kicked off a miserable bear market and the Great Depression.
Source
Originally published at www.fool.com.