FX168 Financial News Agency (North America) Investors have been waiting for the US IPO market to thaw after a difficult two-year test. Donald Trump's election victory may help make this happen.
Since Trump's victory last week, shares of leading investment banks such as Morgan Stanley (MS), Goldman Sachs (GS), JPMorgan (JPM), and Jefferies Financial (JEF) have all risen by 10% or more.
This action, coupled with the significant rise in funds such as Destiny Tech100 (DXYZ) – a closed-end fund that purchases stocks for investors in companies like SpaceX, OpenAI, and Stripe – indicates investors are beginning to bet on an IPO revival.
Jay Ritter, a professor at the Warrington College of Business at the University of Florida who researches IPOs, said: "I certainly expect that unless the stock market falls significantly, IPO activity in the US next year will increase."
Rising stock markets, along with the overall market rise, lead experts to believe that 2025 may see the comeback of public offerings.
After a boom with over 1,000 companies listed in 2021, the number of IPOs dropped to 179 in 2022 due to rapidly rising interest rates, with only 148 last year. However, the IPO market has recently shown signs of recovery. So far this year, there have been 193 IPO listings, the highest total since 2021. Nevertheless, this is still below the average level of 290 companies per year over the past decade.
According to Ritter, the resurgence of IPO activity is more likely related to the stock market rebound after Trump's victory, rather than the policies expected to be put in place by the president-elect, which are expected to reduce corporate taxes and relax regulations.
Ritter pointed out that the Sarbanes-Oxley Act of 2002 and the Jumpstart Our Business Startups (JOBS) Act of 2012 are typical examples of legislation that could impact the IPO market, but have a "quite small" impact on the industry.
On the contrary, Wright believes, "The more important question is what will happen in the stock market."
Since Trump's victory on November 6th, the S&P 500 index has risen over 3.5%, while the Dow Jones Industrial Average and Nasdaq Composite Index have both risen over 4%.
Strategists also do not believe that the rebound after this election has ended.
Julian Emanuel, head of the stock, derivatives, and quantitative strategy team at Evercore ISI, recently presented a case that the S&P 500 index will reach 6,600 points by June 2025, thanks to "public re-engagement in speculation." He added that the market is "optimistic," which typically accompanies more initial public offerings.
"IPO will be a sign of the artificial intelligence frenzy," Emanuel said.
Goldman Sachs stock strategy team led by David Kostin also expects the IPO market to pick up in the coming months.
The Goldman Sachs team uses their own "IPO issuance weather vane", which is influenced the most by the S&P 500 index's decline from its recent 52-week high. Together with CEO confidence, ISM manufacturing index, change in 2-year US Treasury yield, and other factors like S&P 500 index valuation, a score can be derived.
Historically, a reading of 100 on the index represents consistency between the macro environment and IPO historical pace. Currently, with the S&P 500 index level and valuation multiples nearing historical highs, this index is now at 137.
"Given the positive macroeconomic background, the only obstacle hindering the surge in new stock issuance activity seems to be that private equity and venture capital firms are unwilling to admit that the high company valuations in 2021 are unlikely to reappear in the foreseeable future," Costin's team wrote.
At some point, companies seeking opportunities for employee and early investors to exit will have to accept what the market offers them.
The Wall Street Journal reported on Wednesday that Swedish fintech company Klarna has secretly applied for an IPO. In 2021, the company's market cap soared to over 40 billion US dollars, but a year later fell below 10 billion US dollars.
