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.
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.
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.
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.