The 5% pullback in January sent waves of panic through Wall
Street. It had little effect on the IPO market.
There have been more IPOs on U.S. markets in January and
February than at any point in the last decade. Thirty-five
companies have gone public on U.S. exchanges so far in 2014 - and
that's with another two weeks still to go in February. Even in
2013, the best year for stocks since 1997, there were only 20
IPOs in January and February.
Returns in the IPO market have been strong too. Three IPOs
have already more than doubled since their debut. Three others
have risen more than 30%.
Most of the IPOs have been small-time biotech and
pharmaceutical companies - companies that tend to go public when
times are good on Wall Street. They try to ride the coattails of
a bull market, even if they're not financially sound enough to go
Clearly, the mini-slump on Wall Street in January didn't
dissuade these types of small-cap, speculative companies from
going public. They didn't seem to think that the correction would
last. Perhaps that was as good a sign as any that the recent
pullback was little more than a blip on the radar amid a bull
rally that is now five years in the making.
There are plenty of ways to gauge investor sentiment on Wall
- or volatility index - is one of them. The higher it rises, the
more afraid investors are. And the VIX certainly spiked in late
January, hitting its highest level in over a year. Now it's
fallen back to where it was throughout most of 2013.
Consumer confidence, the
- those are other good gauges of which way the market winds are
blowing, or will soon blow.
Don't discount IPOs as another useful measuring stick. And
really, it's a simple one. If a lot of companies are going
public, that's typically because they think the market will
remain strong for the foreseeable future. It's no coincidence
that only 31 companies went public in 2008, just as the Great
Recession was taking hold. Conversely, it's no coincidence that
more companies went public last year than at any point since the
So if you're ever feeling uncertain about which way the market
is headed, just look at IPOs. If companies are still going public
in rapid succession, chances are a market crash isn't coming.