The worst IPO market in 37 years

Key points:

• Investors' appetite for providing capital to newly public companies has completely dried up
• The dollar value of non-SPAC IPOs of more than $25 million has plunged to the lowest in 37 years
• A shortage of activity like this is typical in the discouragement phase of a typical sentiment cycle

The IPO market has gone silent

A little over a year ago, it was the best of times. At least, it was for money-losing operators looking to cash out and the bankers who feed on them. As we saw last June, we were amid a speculative frenzy with only two precedents.

Things have changed, and in a big way. That market has completely dried up. The Wall Street Journal noted just how dire the environment has been for investment bankers.

The U.S. IPO market has achieved a new superlative-by one measure, it's now in its longest drought in more than two decades. The culprit: soaring inflation, rising interest rates, fear of an impending recession and a volatile stock market.

It's been 109 days since a U.S. company raised at least $25 million in a traditional IPO, according to Dealogic data analyzed by accounting firm PwC. That edges out the previous longest drought on record in 2008, when there were no U.S. IPOs raising at least $25 million for 103 days between August and November.

According to Bloomberg data, since May, there has been only one IPO with proceeds greater than $25 million when ECB Bancorp raised $89 million in late July. We're removing special purpose acquisition companies (SPACs) from the equation because they distort the figures and aren't actual operating companies.

The chart below shows just how unusual it is for the IPO market to dry up so thoroughly and for such an extended period. It shows a rolling 12-week sum of IPOs in the U.S. that priced an offering greater than $25 million - again, excluding SPACs. The red dots highlight similar troughs in activity.

If we look at the dollar amount raised, it's pretty much the same story but even more extreme. As a percentage of the market capitalization of all U.S. stocks, the last three months have seen the lowest amount ever, dating to 1985. This even exceeds the last dry spell from October 2008.

What the research tells us...

The performance of the IPO market is not a precise timing mechanism by any stretch. As we saw last year, it's more of a broad indicator of the market environment and where we may be in the typical sentiment cycle.

Investment bankers will feed investors whatever they're pining for, and right now it is NOT young companies looking for capital. That suggests we're in the discouragement phase of the cycle. That can last a while and is often accompanied by wide swings that don't take us much of anywhere. The bright side is that it also usually means that even if stocks decline in the weeks and months ahead, it probably wouldn't be to much lower lows.