Q3 2020 Capital Markets Watch

US equity markets soar despite COVID-19 and economic headwinds

US capital markets powered ahead during the third quarter, reaching record highs amid the continued spread of COVID-19 and other economic uncertainties. US IPOs raised a record $58.1 billion in the third quarter from 152 companies. The IPO window remained open for private companies looking to transition into the record-setting public markets. The average IPO returned 46%, while the average one-day pop was 43% across all IPOs — more than double the same quarter last year, signaling continued investor appetite for IPOs in a capital-rich environment.

We expect the market to finish 2020 on a strong note, as interest rates remain low and the economy potentially embarks on a path to recovery in the months ahead. While the US presidential election will likely trigger more volatility in the markets, demand for traditional IPOs, SPACs and debt will likely continue to drive US equity markets through 2020.

Highlights from Q3

  • High-profile tech IPOs dominated this quarter, as the largest ever software IPO raised over $3 billion and closed 112% higher on its first day of trading. Indices have begun to see high concentration in top tech names and continued interest in the broader tech sector, accounting for nearly 40% of the S&P 500’s market cap.
  • SPACs continued to attract media and investor attention during the third quarter. There were 82 SPAC IPOs in the third quarter, which was more than all of 2019 or any prior year. The number of SPAC mergers has also increased with private companies beginning to view SPACs as a viable path to liquidity and a public listing.
  • The follow-on markets remained healthy after a strong second quarter, as companies continued to take advantage of strong equity markets and valuations. Activity stabilized to historical levels, raising $46 billion in follow-on equity, representing a 54% decrease from Q2’20 as short-term capital concerns subsided.
  • Debt markets continued their strong run and remained popular with investors seeking yield in the face of consistent low interest rates being projected by the US Federal Reserve. One hundred ninety-two high-yield bond issuances raised $128 billion during the third quarter despite the traditional summer slowdown.



Two NYSE direct listings took place this quarter with a combined first day closing market cap of $20bn, with an additional NASDAQ direct listing to start off Q4.

“IPOs and follow-on activity returned to the US markets in strength as issuers and investors adapt to working under a COVID environment”

- Daniel Klausner, Capital Markets Advisory Leader

With continued low interest rates, an accommodative stance by the Fed and some recovery in the US economy, capital markets are likely to remain active for the remainder of 2020. Equities have been trading at near record highs, albeit in a volatile environment. We expect the IPO window should remain open, including SPACs, with unusually high visibility into the pipeline showing a number of well-known companies coming to market.

The debt capital markets should also remain attractive for issuers, with the investment-grade and high-yield bond markets and the leveraged finance markets very active as companies build liquidity to face the uncertain duration of the current economic contraction.

The US presidential election in November is likely to cause increased market volatility, with a potential pause in capital market activity in the run-up to the results. However, we believe that regardless of the voting outcome, capital markets should finish off the year strong.

The US economy suffered its sharpest contraction on record in the second quarter of 2020. While there are growing signs the collapse in economic activity caused by the COVID-19 pandemic has bottomed out, the recovery is slow going, and certain sectors and income brackets are rebounding faster than others. Despite recent improvements, both employment and spending on services remain well below their pre-pandemic levels. While we expect the US could exit recession later this year, it may still take several years before economic activity returns to its pre-recession levels. Although the US economy will most likely return to positive growth in the second half of 2020, we expect the real GDP for the year to contract by 4%.

GDP growth will likely rebound in 2021 as we expect a vaccine to become widely available and consumer and investor confidence to recover. However, risks are weighted to the downside. Slower job growth and waning fiscal support could restrain consumer spending and set back the broader economic recovery. Our baseline expectation is for economic growth to reach 3.5% in 2021, as the labor market recovers and monetary policy remains highly accommodative.

Please note: IPOs with deal values that are 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 the above narrative. Debt issuances in the above analysis are US marketplace tranches, denominated in US dollars, and exclude collective instruments (Source: Refinitiv). IPO returns exclude SPAC IPOs. All data is as of September 30, 2020.

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Mike Bellin

Mike Bellin

IPO Services Co-Leader, PwC US

David Ethridge

David Ethridge

IPO Services Co-Leader, PwC US

Daniel Klausner

Daniel Klausner

Capital Markets Advisory Leader, Deals, PwC US

Derek Thomson

Derek Thomson

Capital Markets Research Leader, Deals, PwC US

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