Goldman Sachs believes the stock market will be able to absorb the hundreds of billions of dollars in initial public offerings (IPOs) and follow-on issuances this year.
In a new episode of the bank’s Exchanges podcast, Goldman chief US equity strategist Ben Snider says there are three main reasons this year’s IPO activity won’t drain liquidity from stocks despite it being a top investor worry.
“It’s amazing, actually, more than AI (artificial intelligence), more than the macro environment today, this is the fear that investors have, that that supply is going to overwhelm the market, and I think there are a few reasons not to worry.”
The analyst says that while the numbers tied to this year’s IPO activity sound large they are relatively normal based on historical precedence and other factors.
“First, as I mentioned earlier, the number of deals is really not exceptional, although the magnitude of dollar issuance is quite large. Second is, of course, markets get larger over time. And so, although we’re forecasting a record magnitude of issuance, about $700 billion this year if you combine IPOs and follow-ons, that scales to about 1% of the equity market. That’s actually lower than the long-term average. It’s roughly in line with the environment from 2015 to 2019.”
The analyst also says that share demand in the market remains robust.
“And then the third reason is that corporate demand is still quite elevated. If you look at buybacks, they’re going to exceed a trillion dollars this year, which means even before we think about retail investors or hedge funds or mutual funds, corporate demand for shares is going to outweigh corporate supply of shares.”
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