What happened on Wall Street last week was a throwback to yesteryear’s Coney Island Amusement Park. This was anything but amusing. The steep fall by the three major U.S. stock indexes was like the Cyclone rollercoaster’s first plunge. It was heart stopping.
Will Rogers was fond of saying, “All I know is what I read in the papers.” He didn’t have the Internet to check fiction versus fact. This past week, we were subjected to an IPO media blitz about Groupon and Facebook. In the jaded eye of the Wall Street professional, it was fiction.
Any qualified investor with a dream and the right bid can get in on this week’s only IPO at its initial offering price. It’s a Dutch auction. But history tells us: Don’t look for an opening-day moonshot.
On the first day of September, victory laps around the Wall Street arena were few and far between. There was not much to celebrate over the year’s first eight months. With the popular stock market averages in a correction (down 10 per cent or more from their previous highs) and only 37 percent of the year’s IPOs closing above their initial offering prices, no champagne corks were popped in lower Manhattan.
Reports of the death of IPOs are greatly exaggerated. This is the time of year the IPO market goes into its seasonal hibernation period, but the real clue to “life after death” was found at last week’s U.S. Securities and Exchange Commission filing window. It was a busy place.
This year’s IPO Labor Day break could not have come any sooner for the calendar. A quick look at the popular stock market indexes makes for unpleasant reading. But no matter what happens in the near future, IPOs will not be in play.
When the stock market closed on Friday, it left the popular indexes in what is called a correction, a drop of 10 percent or more from their recent closing highs. The Dow Jones Industrial Average was down 12.7 percent, the Nasdaq Composite Index was down 12 percent and the S&P 500 was down 13.6 percent. But don’t be so fast to count out the stock market and the IPO calendar. History is on the side of the good guys.
By now, everybody knows the final shoe on the U.S. debt crisis dropped late Friday afternoon. Standard & Poor’s cut Uncle Sam’s perfect credit rating. That move, which until just recently had been unthinkable, came after Wall Street’s closing bell on Friday. What will happen on Monday morning is anybody’s guess -– the United States has never traveled down this road. Japan has, Canada has, and each has muddled through. Now it’s our turn.
The U.S. debt crisis wrapped its fingers around the stock market and dragged it down to the sharpest single-week loss since the week ending Aug. 13, 2010. During this summer storm, the IPO calendar took its share of hits as well.
If you think 12 IPOs on this week’s calendar is awesome, look in the rear-view mirror. Look past the Internet bubble of 1999/2000 all the way back to 1996. That was the busiest year for IPOs, when a record number of 874 were priced, according to the U.S. Securities and Exchange Commission filings. And 109 came in October of that year.