Capital raising activity in Q3 2022 continued to decline toward historically low levels amidst a long list of uncertainties, most notably the inflationary environment and corresponding rate hikes. Markets also are trying to determine if a tightened money supply will cause a recession and, if so, what that recession will look like in terms of length and depth. Global geopolitical uncertainties — including the war in Ukraine, US-China tensions and economic concerns in the UK — also continue to impact markets.
All of these factors have contributed to 2022 tracking towards the quietest year for US-based IPOs this century. US debt markets will likely remain challenged in the near term as economic headwinds keep issuers on the sidelines and investors demand greater return for riskier assets. Volatility should be expected while the Fed fights its battle against inflation.
Still, we do see some encouraging trends:
PwC capital market analysts expect that Q3 economic activity will likely show a soft rebound in real GDP growth with inventory growth and net trade driving positive growth. While higher inflation continues to erode consumer purchasing power, consumer demand should remain a positive driver of growth over the next few quarters. However, with the Federal Reserve expected to continue hiking interest rates at a relatively aggressive pace, we expect economic growth to slow further in the near term. Our baseline projection is for real GDP growth to slow to roughly 1.5% in 2022, a sharp deceleration from 5.7% in 2021.
“The IPO market is not closed, but the current investor focus on scale, profitability and an attractive valuation is challenging for most companies in the pipeline.”
Looking forward, attention remains on Federal Reserve Chairman Jerome Powell, who has reemphasized the Fed’s role in maintaining price stability to support consumer and business confidence. In the September Federal Open Market Committee (FOMC) meeting, the Fed signaled plans to continue raising rates until inflation returns to its target rate of about 2%. The market will closely watch key indicators such as the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) in order to help forecast the magnitude of the rate increases and what that would mean for a potential recession.
Note: IPOs with deal values of less than $25 million, best efforts offerings, oil and gas royalty trusts, business development companies, pricing on OTC Bulletin Board and OTC Pink Sheets are excluded from this narrative. Data from SEC filings and third-party databases as of 9/26/22.
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