Carlsquare weekly market letter: The IPO window is open again

• As the stock market reaches new highs, the IPO market is also heating up. We can see this in the interest we are getting from both companies and investors. Some early birds have also taken the plunge, and the few IPOs that have taken place, have been well received
• The S&P 500 continues to rise and after a few days of hiccups, the bulls have even produced a morning Star (yes, that’s a positive)

The Financial Times writes that the European IPO market has had its strongest start to the year, with companies raising a total of $3.2bn since January, putting it on track for the best first quarter since 2021. In fact, European IPOs have raised more in the first quarter of 2024 than in any other first quarter since 2015, with the exception of the record year of 2021.

This is of course being driven by the positive momentum we are seeing in equity markets, with the German DAX and the French CAC 40 hitting record highs. Above is the weekly chart of the German DAX index, breaking up and away.

Behind the positive momentum in global equities are lower energy prices and lower inflation as central banks move from withdrawing liquidity to providing it, with China leading the way. There is also enthusiasm for new technologies such as AI. On the negative side, the market is worried about recession, too much credit, war in Ukraine and Gaza. And the big election year in 2024 is also seen as a source of anxiety.

We have been positive on the stock market since last autumn, and our prediction that the election year 2024 could be positive, as all incumbent governments have an incentive to spend extra in that year, has still been correct. But of course you should always be on the lookout for sudden corrections!

With the positive sentiment in the market, we can now see the IPO market opening up. The last two years have been very weak, but that is also a backlash from the record year of 2021 when, to be honest, too many companies went public.

But now we can see a big improvement in sentiment. Above is the Renaissance IPO Index in blue compared to the performance of the S&P 500 in red. If the S&P 500 is doing well, it will pull the IPO index along with it, probably filling the gap in one way or another.

The European IPO market has been as active as the US market since 2021. But sentiment is improving here too.

German defence company Renk, which went public in February this year, is trading well, up 12% since the IPO.

Similarly, German life sciences company Schott Pharma, which went public at the end of September, is up +14% since its IPO.

The Swedish low-price retailer Rusta, mentioned above, has been in the spotlight of the Swedish market since its IPO in October 2023. The IPO has been well received, with the share price up 47 per cent on the IPO price. Rusta is now paving the way for other IPOs.

More companies are now expected to list in Q1 or early Q2 2024, including German cosmetics retailer Douglas, Swiss skincare company Galderma and Swedish financial group Karnell. As the prospect of ECB rate cuts as early as June 2024 grows, more companies are lining up to list, including Italian luxury sneaker brand Golden Goose, Spanish beauty and fashion group Puig and private equity firm CVC, which postponed its IPO last year. German low-cost transport company Flix is also considering an IPO before the summer break.

It should be noted that it is extremely important for both the companies and the investment banks to make the IPO at the right price level. It is absurd that the first day of trading is the day to measure whether the IPO was successful or not. As a result, investment banks tend to be conservative in their valuation expectations for companies going public early in the cycle. This means that it can be advantageous to invest in IPOs when there is less activity in the IPO market. At the peak, there is a lot of froth and IPOs tend to be sold at inflated valuations.

An interesting way to track and invest in this market is to follow the IPO ETF mentioned above. The Renaissance ETF aims to provide investors with the largest and most liquid US-listed IPOs in a single security, reducing the risk of holding individual stocks while avoiding overlap with major core indices for optimal market and time diversification. This is a way to trade the entire IPO market without taking on the risk of individual stocks.

The S&P 500 is still trading in a rising wedge. Eventually it will break down, but there are no sell signals yet, so it is best to let the trend be your friend. If we zoom in on the last three trading days in anticipation of the CPI numbers, we see a three-day formation with a down day, followed by a pause and then a third day of positive momentum. This all adds up to a morning star on the chart.

Perhaps the easiest way to follow the market is to use the above chart as a guide. It shows the 3 hour performance of the Nasdaq. You can see a strong trend line on the chart. As long as the Nasdaq is trading above it, weakness in individual stocks can be seen as buying opportunities. However, a break below the trend line is a strong red alert for the overall market.

You can also just follow NVDA. The stock is struggling with EMA5 and EMA9. If they break, it will be a red flag for the whole market. Take it one day at a time. No need to fight the trend.

Happy trading!

Week Ahead

Reports and event on Wednesday, 13 March: Köbenhavns Lufthavne, Inditex, Volkswagen, Zalando and Lennar. Capital Markets Day for Electrolux Professional.

The UK will present GDP and Industrial Production for January at 8.00 CET. Euro zone industrial production for January is due at 11.00 CET. From the United States, we get weekly oil inventories statistics (DOE).

Reports on Thursday, 14 March: Rusta, Roblon, Adobe and Foxconn.

Statistics Sweden publishes the CPI for February at 8.00 CET. Spain’s CPI for February is due one hour later. At 10.00 CET, the IEA releases its monthly oil report. From the United States, PPI and retail sales for February, weekly jobless claims and inventories of unsold goods for January will be released.

Reports on Friday, 15 March:  –

Chinese house prices are due at 2.30 CET. At 8.00 CET, Kantar Prospera reports on Swedish investors’ inflation expectations. At the same time, we get the unemployment rate and the construction cost index for February from Statistics Sweden, as well as German wholesale prices for February. Before lunch we will also get the French and Italian CPI for February. From the United States, we have import prices and industrial production for February, as well as the Empire manufacturing index and the Michigan index for March.

Event on Monday, 18 March:  Boliden Capital Markets Day.

From China we get industrial production, retail trade, investment for January-February and unemployment for February at 3.00 CET. From the Euro-zone, the trade balance for January and the CPI for February are due at 11.00 CET. The US NAHB Housing Market Index for March will be released at 15.00 CET.

Reports on Tuesday, 19 March: –

The Bank of Japan will make an interest rate announcement at 4.00 CET. Japan’s industrial production for January is due at 5.30 CET. The German ZEW index for March will be released at 11.00 CET. After lunch (in Europe) we get the Canadian CPI for February. From the United States we have Housing Starts and Building Permits for February, Redbook Retail Sales, weekly data, and Oil Inventories (API), weekly statistics.

Disclaimer:

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