Filed Under: Business

Five Wall Street trends screeching to a halt in the bear market

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The Dow Jones, S&P 500 and Nasdaq are all in a bear market, which is when an index falls 20% or more from a recent high. Wall Street had record returns last year but a troubled economy and high consumer prices have taken a toll on markets so far in 2022. We have the formerly hot Wall Street trends that are getting stopped in their tracks in this week’s Five for Friday.

#5: IPO

Over the last few years it seemed like there was a high profile initial public offering every week. In the last two years, Airbnb, DoorDash, Robinhood and Rivian were some of the big names to hit the street. Last year, U.S. listed companies raised $155 billion through IPOs, but in the first half of 2022, it was just $4.8 billion. Not all IPOs perform well and current economic conditions have investors looking to minimize risk.

#4: SPAC

Special Purpose Acquisition Companies were hugely popular during the COVID-19 pandemic. SPACs are those shell companies that raise capital through an IPO. It sidesteps traditional due diligence to take a private company public. More than 600 SPACs launched in 2021, but so far this year just over 70 have gone this route. A number of high profile SPAC failures in recent memory has taken a toll on sentiment, slowing the trend.

#3: Private Equity

Private equity firms also shattered records in 2021, taking part in $1.1 trillion in buyouts amid a seemingly strong and resilient economy. The first half of 2022 was looking to follow suit, but now private equity is reportedly struggling to raise money to keep up the pace.

#2: Mergers & Acquisitions

This year has had some high profile mergers and acquisitions, headlined by Microsoft’s $68 billion purchase of Activision Blizzard and chipmaker Broadcom’s $61 billion acquisition of cloud provider VMware. Despite these massive deals, the third quarter is shaping up to be the worst for M&A since the second quarter of 2020. In fact, this decline will break an eight quarter streak of $1 trillion in deals, according to analysis from Bloomberg.

#1: Credit

When interest rates are low and the economy is moving along smoothly, it’s easy to get credit. But the Federal Reserve has put an end to its easy money policies and banks are lending less. So when firms need cash, they turn to private equity, but private equity doesn’t have the stockpile it once did and those deals tend to not be as advantageous as low interest loans from banks.

SIMONE DEL ROSARIO:

WELCOME TO THE BEAR MARKET WHERE CONSUMER PRICES ARE STILL HIGH AND THE ECONOMY IS SUS AT BEST. AFTER RECORD RETURNS ON WALL STREET LAST YEAR, THIS DOWNTURN IS CRUSHING DEALS LEFT AND RIGHT. WE’VE GOT THE FORMERLY HOT WALL STREET TRENDS THAT ARE GETTING STOPPED IN THEIR TRACKS IN THIS WEEK’S FIVE FOR FRIDAY.

FOR A WHILE THERE IT SEEMED LIKE A HIGH PROFILE COMPANY WAS GOING PUBLIC EVERY WEEK. BUT THOSE DAYS ARE GONE. SEE, IN 2021, U.S.-LISTED COMPANIES RAISED $155 BILLION IN PROCEEDS THROUGH INITIAL PUBLIC OFFERINGS. BUT IN THE FIRST HALF OF 2022, IT WAS A MEASLY $4.8 BILLION, FALLING OFF A CLIFF.

SPACS BOOMED IN POPULARITY DURING THE PANDEMIC. THEY’RE THOSE SHELL COMPANIES THAT RAISE CAPITAL THROUGH AN IPO. IT SIDESTEPS TRADITIONAL DUE DILIGENCE, MAKING IT A FAST-TRACKED WAY TO TAKE PRIVATE COMPANIES PUBLIC. THEY WERE THE DARLING LAST YEAR WHEN MORE THAN 600 LAUNCHED, BUT SO FAR THIS YEAR, JUST OVER 70 HAVE GONE THIS RISKY ROUTE. JUST SEE OUR FFF ON SPAC FAILURES TO FIND OUT WHY.

PRIVATE EQUITY FIRMS ALSO SHATTERED RECORDS IN 2021, NOTCHING $1.1 TRILLION IN BUYOUTS, THE ECONOMY ROCKIN ‘AND ROLLIN’. AND THE FIRST HALF OF THE YEAR WAS LOOKING JUST AS STRONG, BUT NOW FIRMS ARE REPORTEDLY STRUGGLING TO RAISE MONEY TO KEEP PACE. WHILE FUNDS MAY GET CREATIVE TO KEEP MONEY FLOWING, IT’S GONNA BE MAKE OR BREAK IN THESE TRYING TIMES.

OK, 2022 *HAS HAD SOME BIG TIME MERGERS AND ACQUISITIONS, HEADLINED BY MICROSOFT’S $68 BILLION PURCHASE OF ACTIVISION BLIZZARD. DESPITE SOME BIGGUNS THIS YEAR, THIS QUARTER’S NOW ON TRACK FOR THE WORST M&A QUARTER SINCE Q2 2020, ACCORDING TO BLOOMBERG. THEY SAY THE DECLINE WILL BREAK AN 8 QUARTER STREAK OF TOPPING A TRILLION IN DEALS.

WHEN INTEREST RATES ARE LOW AND THE ECONOMY IS BOOMING, THE CREDIT IS FLOWING. BUT NOW THE FED’S ENDED EASY MONEY POLICIES AND BANKS ARE LENDING LESS. SO NOW WHEN FIRMS NEED CASH, THEY’RE TURNING TO PRIVATE EQUITY, BUT AS WE ALREADY MENTIONED, THAT WELL ISN’T AS THIRST-QUENCHING AS IT USED TO BE, AND NOW THOSE WHO HAVE THE MONEY, HOLD ALL THE POWER.

2021 WAS THE YEAR OF “RECORD THIS AND THAT”, BUT IT LOOKS LIKE 2022 MAY BE THE YEAR OF “WORST YEAR SINCE.” IT’S NOT ALWAYS GOOD NEWS FOLKS BUT THAT’S YOUR FIVE FOR FRIDAY. I’M SIMONE DEL ROSARIO. IT’S JUST BUSINESS.

The Dow Jones, S&P 500 and Nasdaq are all in a bear market, which is when an index falls 20% or more from a recent high. Wall Street had record returns last year but a troubled economy and high consumer prices have taken a toll on markets so far in 2022. We have the formerly hot Wall Street trends that are getting stopped in their tracks in this week’s Five for Friday.

#5: IPO

Over the last few years it seemed like there was a high profile initial public offering every week. In the last two years, Airbnb, DoorDash, Robinhood and Rivian were some of the big names to hit the street. Last year, U.S. listed companies raised $155 billion through IPOs, but in the first half of 2022, it was just $4.8 billion. Not all IPOs perform well and current economic conditions have investors looking to minimize risk.

#4: SPAC

Special Purpose Acquisition Companies were hugely popular during the COVID-19 pandemic. SPACs are those shell companies that raise capital through an IPO. It sidesteps traditional due diligence to take a private company public. More than 600 SPACs launched in 2021, but so far this year just over 70 have gone this route. A number of high profile SPAC failures in recent memory has taken a toll on sentiment, slowing the trend.

#3: Private Equity

Private equity firms also shattered records in 2021, taking part in $1.1 trillion in buyouts amid a seemingly strong and resilient economy. The first half of 2022 was looking to follow suit, but now private equity is reportedly struggling to raise money to keep up the pace.

#2: Mergers & Acquisitions

This year has had some high profile mergers and acquisitions, headlined by Microsoft’s $68 billion purchase of Activision Blizzard and chipmaker Broadcom’s $61 billion acquisition of cloud provider VMware. Despite these massive deals, the third quarter is shaping up to be the worst for M&A since the second quarter of 2020. In fact, this decline will break an eight quarter streak of $1 trillion in deals, according to analysis from Bloomberg.

#1: Credit

When interest rates are low and the economy is moving along smoothly, it’s easy to get credit. But the Federal Reserve has put an end to its easy money policies and banks are lending less. So when firms need cash, they turn to private equity, but private equity doesn’t have the stockpile it once did and those deals tend to not be as advantageous as low interest loans from banks.

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