As the U.S. gears up for the presidential election in November, the resurgence of initial public offerings (IPOs) is expected to experience a brief slowdown.
Market advisors and investors predict a temporary pause in IPO activities around the Nov. 5 election, although this is not anticipated to be a major disruption to the overall momentum of public listings.
According to Mark Schwartz, Ernst & Young's Americas IPO and SPAC advisory leader, the election might create a timing shuffle for some IPOs, pushing some to late 2024 or into 2025, while others might move up their schedules.
“Whether there's a bigger pull forward or a push back really depends on how the narrative continues to develop,” Schwartz told Bloomberg
The IPO scene has regained some steadiness after a prolonged lull, with companies raising over $13.7 billion in the U.S. this year, surpassing the figures from the same timeframe last year. However, compared to the record-breaking year of 2021, the current volume of IPOs through April remains 92% lower, as per data from Bloomberg.
Previn Waas, co-leader of Deloitte & Touche LLP's U.S. IPO services, notes that the election period typically causes a reduction in IPO activities, suggesting firms avoid the market noise during the two weeks before and after the election. “The election is more of, avoid the two weeks before and after, than who will win,” Waas told Bloomberg.
Historical data from ICR Capital indicates a significant dip in IPOs during November of election years, with an average of only six IPOs occurring, half the usual number. But, there is generally a rise in activity in the months leading up to the election to compensate for the slowdown.
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Why It Matters: Among the companies navigating this complex environment is Trump Media & Technology Group DJT, the entity behind former President Donald Trump's platform, Truth Social. Since its Nasdaq debut on March 26, the company’s stock has seen substantial volatility. This underscores the unpredictable nature of IPOs in politically charged climates.
Reddit Inc RDDT is another firm feeling the market’s scrutiny. Since its public offering, skepticism from U.S. brokerages about its profitability and the looming risk of becoming a “meme stock” have highlighted the challenges some companies face in this uncertain period.
Both companies, along with others in the IPO pipeline, are advised to remain vigilant of the election-related shifts in market sentiment and adjust their public offering strategies to align with the potential for increased market noise and volatility during this period.
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