Summary List Placement
Although most would rank 2020 exceedingly high on a list of years to soon forget, the past few months haven’t been all that bad from an investing standpoint.
Despite an unprecedented virus, stockpiling bankruptcies, and double-digit unemployment, markets have demonstrated a fierce level of stoicism. On Friday, the S&P 500 sat about flat for the year.
But now, things are getting stranger. And David Rosenberg, the famed economist and founder of Rosenberg Research, thinks he’s pinpointed a reemerging trend that could aid an unwind — one investors haven’t had to grapple with for decades. He is concerned about the spurt of initial public offerings that was most recently juiced by the record-breaking debut of cloud-software provider Snowflake.
“Going into this recent corrective phase, we have been identifying signs of excess and elevated sentiment whether it be in retail participation, the Citi panic/euphoria model, fund flows into ETFs, small speculator positioning in the Nasdaq or the elevated bull-bear spread in the Investors Intelligence survey,” Rosenberg said in a recent client note.
“Well, now there is another that can be added to the list — IPO activity which, by the way, is starting to look like the frenzy that took place in the dotcom bubble.”
Rosenberg provided the following chart dating back to 1990 to provide historical context to the recent spike in IPO activity.
He continued: “As the first day of trading in Snowflake’s recent listing indicated (doubling its IPO price in one day!), the appetite for newly listed shares is insatiable at the moment.”
To Rosenberg, that’s cause for concern. He’s seen similar market behavior push equity prices to nosebleed levels during the dotcom era, a period when profits and sales were erroneously eschewed in place of eyeballs and clicks as valuation metrics. To him, investor appetite is looking distinctly similar.
To demonstrate this idea visually, Rosenberg compares the Renaissance IPO ETF, a conglomerate that tracks new listings, to the S&P 500. Needless to say, investor enthusiasm for new issuance has hit a fever pitch as of late.
To further his thesis, Rosenberg takes a broader look at equity appetite throughout the marketplace, and adds secondary offerings into the mix. Each way he carves it up, the conclusion seems to remain the same: an overzealous environment.
“Moving beyond just the IPO market, it is clear how much investor appetite there is for equities,” he said. “Recent events from Hertz and Tesla are some examples of …read more
Source:: Business Insider