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Stock Market’s Window of Opportunity Sends Equity Issuance to 2022 High

Stock Markets Aug 08, 2022 14:56
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(Bloomberg) -- Corporate America is seizing a window of opportunity in the stock market and ramping up equity offerings while share prices are rallying. 

US secondary share sales roared back to life last week with 18 deals priced, more than at any time since mid-November, raising $2.6 billion, the most since the first week of January, according to data compiled by Bloomberg.

The resurgence in deal flow follows investors’ renewed risk appetite. The S&P 500 Index jumped 9.1% in July, its best month since November 2020. Meanwhile, both the Nasdaq 100 and Nasdaq Composite indexes briefly climbed 20% from their June lows on Monday before falling back. A run of corporate takeovers, which continued into this week, is helping fuel the rebound. 

“The better risk tolerance evident in market action is largely responsible for this,” Bloomberg Intelligence analyst Gina Martin Adams said in an interview. “The strong bounce off of June lows, led by growth sectors and valuation multiples, may suggest to some that the environment to issue has improved quite a bit, particularly in contrast to the constant drumbeat of lower lows and valuation compression evident for much of the first half of the year.”

Now, markets are waiting for Wednesday’s inflation report to see if an end to interest rate hikes is in sight and whether the equities rally has legs.

“Inflation needs to clearly show signs of peaking and declining, otherwise we’d expect this market to abandon some of that near-term hope and for volatility to increase,” according to the Sevens Report newsletter. 

In the meantime, recent deals are trading well. Stocks sold last week jumped by an average of 4.1% from their offering prices during the following session, Bloomberg data shows. That’s much better than the average 1.3% return for secondary offerings this year. 

All but one of last week’s stock offerings involves a corporate issuer raising cash. The issuers earmarked proceeds for uses that include debt repayment, research and development, and funding acquisitions as M&A activity picked up alongside that of ECM. 

About one-third of the deals last week came from biotechnology, but a wide variety of industries were involved in fundraising, including financials and utilities. The biggest offerings were Annaly Capital (NYSE:NLY) Management Inc. and Exelon Corp (NASDAQ:EXC)., which sold $665 million and $500 million, respectively.

Read more: Financials Spearhead Comeback in Follow-On Offerings

One area that still isn’t seeing a resurgence is IPOs, which is typically one of the slowest corners of the market to recover from a downturn. Just two small US listings comprise this week’s pricing calendar as of Monday.

©2022 Bloomberg L.P.

Stock Market’s Window of Opportunity Sends Equity Issuance to 2022 High
 

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