IPOs at Record Levels Often Signal Stock Market Tops
IPOs at Record Levels Often Signal Stock Market Tops. As the chart below shows, an estimated $60 billion in initial public offerings that are headed for the stock market this year could be an all-time record. That is raising eyebrows for many astute market veterans because historically when IPOs flood the market what follows are big declines. Take a look at the huge IPO levels preceding the burst of the dot.com bubble in 2000. Why are huge surges in IPOs worrisome? For one thing the extra supply sops up stock market liquidity. There’s also the fact that IPOs that come to market at the top of an IPO bubble often are often the lousiest in terms of a sustainable investment. And those latecomers are a sign of how irrational investors have become, hoping for the next Apple or Google. Which tend to be relatively rare in the overall IPO universe. Why? Studies have found most IPOs turn out to be lousy long term investments. But they are brought to market by investment bankers as long as investors believe the hype.