IPO Fireworks: It Is Kind of a Big Deal

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Wide variations in sector returns have generally been the norm; this year information technology and healthcare are the leaders; energy and telecommunications are the laggards.

The first half of 2018 was the best for initial public offerings (IPOs) since 2012 and the second quarter was the busiest since 2015 with no signs of slowing in sight. All of these deals are telling us that the economy is robust, business confidence is high and companies have money to expand. Indeed, the latest PMI Index reading soared to 60.2%, the second highest since the recession, the NFIB small business survey indicates near record level confidence and companies have begun to repatriate the $2 trillion in cash held overseas, returning $217 billion in Q1 alone. The explosive pace of IPO activity provides companies with access to liquid and relatively low cost capital, which will allow them to grow their operations, raise their profile and attract more talented workers and management. IPO’s are positive for investors too. Sure, some IPO’s are duds but the WSJ reported (7/3/2018) that the average stock price of the companies going public in 2018 is trading at 23% above its initial offer price. That’s fireworks compared to the S&P 500 YTD (as of 7/3/2018) return of 3% including dividends. Please review the returns of all the major U.S. stock indices on page 18 of the Global Perspectives Book and have a happy and safe Independence Day.

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