TheStreet’s Kevin Curran says it’s been a “bumpy ride” for initial public offering (IPO) companies in 2021. In fact, one IPO benchmark signals a market bottom recently.
“Just in the last month, the Renaissance IPO ETF IPO has turned into negative territory for the year,” Curran said in Real Money. “More pressingly, the ETF has plummeted over 20% from its early-year peak.”
According to Curran, the downturn has been led by holdings in the ETF such as Robinhood HOOD, Coinbase COIN, Rivian RIVN, and Bumble BMBL, each of which have seen major drawdowns as the market encountered choppiness this quarter. The decline, aided by trouble in Chinese stocks like Didi Chuxing DIDI, has far outpaced the comparatively buoyant holdings such as Moderna MRNA .
Why have these formerly hot names turned so cold at the close of the year? Curran points to the Federal Reserve as a likely culprit as the Fed takes a more hawkish tenor in aggressively tackling inflation.
"Inflation may complicate the FOMC's management of monetary policy in 2022," Fed Governor Christopher Waller said in late November. "The timing of any policy action is a decision for the FOMC, but for my part the rapid improvement in the labor market and the deteriorating inflation data have pushed me towards favoring a faster pace of tapering and a more rapid removal of accommodation in 2022."
For IPO names of late, many of which have been predicated on prioritizing growth over steady economics and downplaying the debt necessary to fuel these businesses, this is a major concern. “As such, those names that can survive a higher interest rate environment and therefore more expensive debt are the best positioned,” Curran said. “Clearly, these offerings are not the most prevalent among new IPO names.”
In the end, as the Fed considers a paradigm shift, IPO and SPAC investors must consider doing the same. “At the very least, a sober assessment of one's risk tolerance is very much in order,” Curran said.