Why an IPO ‘meltup’ could signal future trouble for the stock market

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Red-hot IPOs may offer another sign of froth in a rallying stock market that saw all three major U.S. benchmark indexes and a small-cap index hit all-time highs this past week.

Red-hot initial public offerings may offer another sign of froth in a rallying stock market that saw all three major U.S. benchmark indexes and a small-cap index hit all-time highs this past week.

“One example of market enthusiasm is the performance of IPOs relative to SPX,” wrote Jeff deGraaf, founder of Renaissance Macro Research, in a note. Big post-listing gains for a trio of newly listed stocks last week — Airbnb Inc. ABNB, +6.97%, DoorDash Inc. DASH, +7.87% and C3.ai Inc. AI, +17.36% — set off alarm bells for some market watchers as U.S. stock indexes put a pandemic-induced bear market in the rearview mirror and now remain on track for large 2020 gains. All three new listings fell after their pop. C3.ai bounced back and is trading above its debut price.

The S&P 500 remains up more than 14% for the year to date, while the Dow Jones Industrial Average DJIA, -0.41% is up 5.7%.

 

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Maybe so, but I've been in this game since 1984 and as far as I can remember there have always been 'red-hot' IPOs in all markets. The first IPO I ever worked was 'Detroit Diesel' what a boring company during a boring market. But it was a 'Hot' IPO that was way over subscribed.

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