An IPO Boom?
Macro Perspectives
US stocks advanced on Wednesday, as investors digested another batch of earnings.
The S&P 500 added 0.8%, hitting a fresh record high while nearing the 5,000 level, the Dow Jones rose 155 points while the Nasdaq gained 0.9%.
On the earnings front, Ford gained 3.2% on posting upbeat full-year guidance.
Roblox surged by 10.2% after the video game company reported losses less than estimates.
Conversely, Amgen lost 6.4% as its results failed to impress investors.
Yesterday, we talked about the parallels between the current environment and the late 90s boom.
A technology revolution was underway in the late 90s, with the rapid adoption of the internet;
Productivity was high.
Growth was hot.
Inflation was low.
The Fed juiced it with rate cuts, starting in 1995.  Â
This time around, we have a technology revolution, driven by the rapid adoption of generative AI;
Productivity is high.
Growth is hot.
Inflation has fallen fast, back to low levels.
The Fed will be juicing it with rate cuts in the coming months.
If history is our guide, we should expect a coming boom in IPOs. Take a look at the volume of IPOs in the late 90s, the biggest of which came early, in 1996. The frenzied return chasing came late, in 1999.
Major mergers in the financial sector took place during and after that period, but let's take a look at how the late 90s IPO boom influenced the Wall Street kings of underwriting (with emphasis on the performance from the first Fed rate cut up to the March 2000 stock market peak).Â
Here's JP Morgan …
Citibank …
Morgan Stanley …
And no one was responsible for more IPO underwriting volume in that era than Goldman Sachs - they went public in 1999, in the height of the frenzy. The stock went up 60% in 10 months, before the stock market topped in March of 2000.