The IPO window is open again

• As the stock market reaches new highs, the IPO market is also heating up. We can see this in the interest we are getting from both companies and investors. Some early birds have also taken the plunge, and the few IPOs that have been done, have been well received
• S&P 500 continues to rise and after a few days hiccup, the bulls have even produced a Morning Star (yes, that’s a positive)

The Financial Times writes that the European IPO market has had its strongest start to the year, with companies raising a total of $3.2bn since January, putting it on track for the best first quarter since 2021. In fact, European IPOs have raised more in the first quarter of 2024 than in any other first quarter since 2015, with the exception of the record year of 2021.

This, of course, is driven by the positive momentum we are seeing in equity markets, with the German DAX and the French CAC 40 hitting record highs. Above is the weekly chart for German DAX index, breaking up and away.

Behind the positive momentum in global equities are lower energy prices and lower inflation as central banks move from withdrawing liquidity to providing it, with China leading the way. Then there is the enthusiasm for new technologies such as AI. On the negative side, the market is worried about recession, too much credit, war in Ukraine and Gaza. And the big election year in 2024 is also seen as a source of fear.

We have been positive on the stock market since last autumn and our prediction that the election year of 2024 can be positive, as all incumbent governments have an incentive to spend extra that year, has still been correct. But of course you should always be on the lookout for sudden corrections!

With the positive sentiment in the market, we can now see the IPO market opening up. The last two years have been very weak, but that is also a backlash from the record year of 2021 when, to be honest, too many companies went public.

But now we can see a big improvement in the sentiment. Above is renaissance IPO index in blue compared to the development for S&P 500 in red. As S&P 500 develops well, it will drag IPO index with it, probably filling the gap in some way or other.

The European market for IPOs have been as week as the US market since 2021. But also here the sentiment is improving.

German defence company Renk, which went public in February this year, is trading well, up 12% since the IPO.

Similarly, German life sciences company Schott Pharma, which went public at the end of September, is up +14% since its IPO.

The development for Swedish low price retailer Rusta above has been in focus in the Swedish market since its IPO October 2023. The IPO has been well received as the stock is up 47 percent compared to the IPO price. Rusta is now paving way for other IPOs.

More companies are now expected to list in Q1 or early Q2 2024, including German cosmetics retailer Douglas, Swiss skincare company Galderma and Swedish financial group Karnell. As the prospect of ECB rate cuts as early as June 2024 grows, more companies are lining up to list, including Italian luxury sneaker brand Golden Goose, Spanish beauty and fashion group Puig and private equity firm CVC, which postponed its IPO last year. German low-cost transport company Flix is also considering an IPO before the summer break.

It should be noted that it is extremely important for both the companies and the investment banks to make the IPO at the right price level. It is absurd that the first day of trading is the day to measure whether the IPO was successful or not. As a result, investment banks tend to be conservative on their valuation expectations for companies going public early in the cycle. This means that it can be advantageous to invest in IPOs when there is less activity in the IPO market. At the peak, there is a lot of froth, and IPOs tend to be sold at inflated valuations.

An interesting way to track and invest in this market is to follow the IPO ETF' as we talked about above. The Renaissance ETF aims to provide investors with the largest and most liquid US-listed IPOs in a single security, reducing the risk of holding individual stocks while avoiding overlap with major core indices for optimal market and time diversification. This is a way to trade the overall IPO market, without taking the risk with solitary stocks.

The S&P 500 is still trading in a rising wedge. Eventually it will break down, but there are no sell signals yet, so best to let the trend be your friend. If we zoom in on the last three trading days with concern for the CPI numbers, we can see a three-day formation with a down day, followed by a hesitation and then a third day with positive momentum. This all adds up to a Morning Star on the chart.

Perhaps the easiest way to follow the market is to use the above chart as a guide. It shows the 3 hour performance of the Nasdaq and you can see a strong trend line on the chart. As long as the Nasdaq is trading above it, weakness in individual stocks can be seen as buying opportunities. However, a break below the trendline is a strong red alert for the overall market.

Or just follow NVAD. The stock is struggling with EMA5 and EMA9. If they break, it will be a red flag for the whole market. Let us take one day at a time. No need to fight the trend.

Happy trading!