Shein, Reddit IPO moves show investors like risk again
Investors can add a recent string of IPO rumblings to the list of risk-on signs that have flooded the market in the month of November.
Fast-fashion retailer Shein has confidentially filed for an initial public offering in the US, according to multiple press reports Tuesday. This comes as social media website Reddit and Kim Kardashian's clothing brand Skims are also exploring options to go public in 2024, according to Bloomberg.
The latest developments hint at a larger theme: 2024 could be the year the IPO market makes a meaningful comeback.
"We’re more optimistic about the real reopening of the IPO market in 2024 than in 2023," Goldman Sachs asset management global co-head of private equity Michael Bruun said during a media roundtable on Nov. 7.
Many had thought recent public debuts like chip giant Arm (ARM) and Instacart (CART) would bring the return of IPOs earlier this year. Data from Dealogic showed 35 deals were completed in the third quarter, down from the 95 deals seen during the same quarter in 2021 (The market bottomed in 2022).
Recent IPOs, including that of shoemaker Birkenstock (BIRK), were met with muted stock reaction in the days following their listings.
Much of that could've been attributed to the broader market action at the time. Both Arm and Instacart went public just before a sell-off in stocks sparked by the Federal Reserve's comments indicating it would hold interest rates higher for longer.
The new public companies, which are usually viewed as risky investments, were among the many areas in the market that traded lower on the news.
But after the Fed's November meeting investors have increased their bets that the central bank is done hiking interest rates. Beaten-down areas of the market like meme stocks and small cap stocks have rallied in reaction. Even the crypto trade has surged despite continued turmoil in the sector, with shares of exchange Coinbase (COIN) surging more than 70% in the last month while the price of Bitcoin (BTC-USD) is up about 10%.
Bruun expects IPOs to similarly rebound in 2024 when he thinks the Federal Reserve is likely to cut rates.
"When expectation moves such that people are anticipating rate declines and are starting to see rates come down, that’s usually when IPOs open up," Bruun said.
The movements have started in market pricing, which predicts a 54% chance the Fed cuts by May, per the CME FedWatch Tool, compared to a 41% chance a month prior.
And early signs show investors might be more willing to buy shares in newly public companies once there's more confidence in the Fed's path.
Birkenstock and Arm stocks have both surged double digits during the market's November rally.
Josh Schafer is a reporter for Yahoo Finance.
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