Weekly Market Commentary

IPOs AS A MARKET TELL

Dr. Quincy Krosby, PhD, Chief Global Strategist
Jeffrey Buchbinder, CFA, Chief Equity Strategist
Joshua Cline, Associate Analyst

The initial public offering (IPO) market allows institutional investors to incorporate the macroeconomic landscape with individual corporate earnings data — and future earnings forecasts — to ascertain a share price that will hold up to analyst and media scrutiny coupled with overall market dynamics. However, the IPO market has increasingly included allocations for a retail tranche designed to include clients of brokerage firms that receive shares during the issuance stage of the IPO process. So-called “friends” of the company going public also receive shares via Directed Share Programs (DSPs), but this typically lowers the amount of shares that are available to retail clients. For retail clients, the IPO market is far from a level playing field. The IPO process awards the largest portion of new shares to the institutional market by a wide margin. Here we provide an update on recent IPO activity, performance, and discuss why IPO activity matters for markets.

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