Goldman Sachs believes the stock market will be able to absorb 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, Ben Snider, Goldman’s chief U.S. equity strategist, says say There are three main reasons why this year’s IPO activity won’t drain liquidity from stocks, despite this being one of investors’ top concerns.
“It’s actually amazing, 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 associated with this year’s IPO activity sound big, they are relatively normal based on historical priority and other factors.
“First, as I said before, the number of deals is really not exceptional, even though the size of dollar issuance is quite large. Second, markets are obviously getting bigger over time. And while we’re forecasting record issuance size, about $700 billion this year if you combine IPOs and follow-ons, that works out to about 1% of the stock 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 demand for shares in the market remains robust.
“And the third reason is that corporate demand is still quite strong. If you look at the buybacks, they’re going to be over a trillion dollars this year, which means that even before we think about retail investors, hedge funds or mutual funds, corporate demand for stock will exceed corporate supply of stock.”
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