Will IPO Fire Burn Out?

The new year has breathed new life into the market for stock offerings, but will the robust issuance calendar of the last seven weeks turn out to be a last gasp?

Since the beginning of 2006, equity offerings have been on a tear. Through Monday, the total number of equity issuances -- initial public offerings and follow-on offerings -- has increased 23% from a year ago, according to research outfit Dealogic. The performance of stock sold in the offerings has been equally impressive. Shares of companies issuing follow-on equity have risen an average of 5% the day after being priced this year, compared with a gain of 3.2% in 2005. Initial public offerings have increased 9.9% the day after sale vs. 7.3% last year.

The new-issue market tends to be a lagging indicator, mainly because it takes up to six months to execute a deal. IPOs require extensive regulatory filings, the hiring of underwriters, and marketing. Given the uncertain outlook for the second half of 2006, some observers say, the latest flurry might not be sustainable. ...