Financial markets rebounded sooner and much more vigorously than might have been expected at the start of the pandemic, raising concerns that they had decoupled from economic fundamentals, which could in turn lead to another stock market rout before the end of the year.
Having dropped by over 30% between mid-February and late-March, the S&P 500 returned close to year-high levels in the first week of June. This was supported by fresh global liquidity spurred by close to zero or negative interest rates and renewed quantitative easing. In March-April alone, G7 central banks’ cumulative net asset purchases totalled about US$2.5t.
With equity prices back close to historically high levels and central banks providing ample liquidity, IPO activity picked up in late-May-June, coming off falls in April-May of 51% year on year in terms of the number of listings and 75% in terms of proceeds. Given the backlog of IPOs in the pipeline from earlier in the year, the outlook for the second half of 2020 and 2021 looks good.
However, much will depend on whether the recent stabilization can be maintained. A fall of 6% in the S&P 500 index amid a global retreat from equities on June 11th provided a stark reminder of the potential for renewed financial market turmoil, which could cause IPOs to be put on hold again.