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2020 Annual Capital Markets Watch

US capital markets recover to surpass pre-COVID-19 levels

Both the equity and debt markets dealt with two distinct phases in 2020: the period from January to late February — before the COVID-19 outbreak — then late February to year-end, ending with early vaccine distribution in late December. US IPOs raised a record $145 billion from 407 companies in 2020.

We expect growth to continue into 2021 as vaccines become more widely available. The outlook for the capital market is looking to be just as busy as 2020, as interest rates remain low and investors expect earnings to substantially increase in the coming year.

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Capital Markets Annual Watch

Markets recover to set record highs in 2020

V-shaped market recovery

The pre-pandemic phase saw continued strong economic growth, all-time highs in the S&P, low unemployment and strong retail and industrial confidence.

During the pandemic, the market tumbled by 35% in a couple of weeks, then began to recover as the US government announced support packages for individuals, state and local governments, and businesses ranging from small private businesses to large public companies. The work-from-home economy began to gain traction as a viable short-term solution. Investors and companies began to adjust strategies, and the markets continued their recovery until increased volatility around the US presidential election. 

US equity markets in 2020 posted an extended V-shaped recovery, and, perhaps remarkably, the S&P 500 is up 13% for the year and up an impressive 64% from the year’s lows in early March. The US debt markets reached record levels, and the cost of borrowing as shown by spreads to benchmark interest rates returned to pre-COVID-19 levels.

US capital markets demonstrated their resilience this year, underlining the confidence of investors and businesses going into 2021.

IPO market sets records

US exchanges saw the highest levels of investor proceeds in the past 40 years and more than double 2019’s haul.

Major drivers behind the spectacular year


Special purpose acquisition companies (SPACs) raised $71 billion across 230 IPOs, the most for SPACs in a single year. Larger institutional investors took advantage of the open window and issued multiple $1 billion-plus SPACs. Of the SPACs that priced in 2018 and 2019, just under half have completed a merger to date. 

VC-backed tech unicorn filing frenzy

It was a blockbuster year for well-known tech IPOs, with 80 venture capital-backed high-growth IPOs raising $25.2 billion. Most of these companies are in the biotech and technology sectors. 

The TMT sector

Technology, media and telecom (TMT) accounted for about one-third of all non-SPAC IPOs in 2020, consistent with 2019. 

Biotechnology proceeds surpassed combined 2018 and 2019 totals

The global pandemic has increased the profile of pharma and life sciences (PLS) companies. US markets continue to be the go-to place for biotechnology companies to list, with nearly 70% being pre-revenue (less than $1 million) and continuing drug-development or progressing toward human trials. The market is also seeing an increased focus on wearables and sensor technologies as health awareness grows.

Direct listings

Two NYSE direct listings took place in Q3 2020 with a combined first-day closing market cap of $20 billion, along with an additional, smaller NASDAQ direct listing. Direct listings appeal to a very narrow set of issuers who do not need capital, and therefore only constitute a small portion of the IPO marketplace.

2020 returns

Equity returns had a robust year, partially fueled by the influx of capital from the Fed and federal stimulus programs as the availability of capital made its way into the equity markets. Despite a partial shutdown exhibited this year, all three major indices hit record highs, rebounding from a mid-March bear market. IPO returns as a whole outperformed broader equity markets, as the average 2020 IPO returned 76% (excluding SPACs). Much of the gain came from healthy PLS activity as healthcare IPOs continue to attract investors. The 44 completed SPAC mergers in 2020 showed a return of 41%, which would exceed many years IPO returns.

Debt market overview

US debt markets, although flush with lending capacity, had to contend with the impact of COVID-19 and record equity market volatility. In this difficult environment, US debt capital markets not only remained active but set records in 2020. Both investment-grade (IG) and high-yield (HY) issuance posted record highs in proceeds raised, with the HY market breaching the $400 billion mark for the first time ever. Conversely, the leveraged loan market saw issuance fall to a five-year low.

Summary highlights from the record-setting 2020 debt market

Investment-grade bond issuance

  • 2020 proved to be a record year for IG issuance with almost $1.7 trillion raised, an increase of 59% over 2019, as issuers sought increased liquidity to meet pandemic-related challenges and investors pursued incremental returns relative to low-yielding treasuries.
  • Refinancing-related activity comprised 41% of all issuance in 2020 as companies either repaid working capital lines or took advantage of low rates to extend maturity profiles.
  • Acquisition-related activity declined to just 9% of IG issuance.

High-yield bond issuance

  • US high-yield bonds surpassed $400 billion in issuance despite an almost month-long shutdown following the initial COVID-19 outbreak.
  • Refinancings constituted 68% of all HY proceeds in 2020 as issuers sought to leverage lower interest rates and pushed out maturities.

Leveraged loan issuance

Leveraged loan issuance was at a five-year low with $389 billion raised and on pace to underperform the 2019 total of $490 billion due to disrupted M&A and leveraged buyout activity.

Bond yields

Although the cost of borrowing for new issuers almost doubled in March 2020, a number of US government support packages, combined with positive vaccine news, has since brought the cost of borrowing back to pre-pandemic levels.

What to watch in 2021

The fallout from the COVID-19 crisis ended the longest US economic expansion on record. While the collapse in economic activity caused by the pandemic has bottomed out, the recovery remains slow going and uneven across sectors and income brackets. Employment and spending on services remain well below their pre-pandemic levels, and we expect the real GDP for 2020 to contract by 4%.

Growth will likely rebound in 2021 as an effective vaccine becomes available and consumer and investor confidence recover. However, risks are weighted to the downside. Slow job growth and lack of fiscal support could restrain consumer spending and hold back the broader economic recovery. Our baseline expectation is for economic growth to likely reach around 3.5% in 2021 as the labor market continues to recover and monetary policy remains highly accommodating. 

We expect the US equity and IPO capital markets to begin 2021 on a strong note. The IPO market in 2020 has become somewhat bifurcated, with an almost equal split between more traditional IPOs based on existing businesses, and SPAC IPOs seeking mergers with existing businesses.

The 2021 market for traditional IPOs will continue to remain active. Investors are anticipating a substantial increase in earnings in 2021, with the S&P 500 forward P/E multiple closing the year at around 22x, up one-third since the beginning of the year. The IPO market will also continue to be supported by a pipeline of private-equity-backed companies coming to market.

The outlook for SPACs in 2021 is going to be largely dependent on the success of the current crop of SPACs being able to identify and successfully merge with companies that provide earnings growth. SPACs were partly a response to the pandemic, and the macroeconomic monetary and fiscal policies provided liquidity that was seeking a return. SPACs provided investors with a place to invest their money, with the upside of a successful merger providing high returns and a limited downside of recouping most of their investment after 24 months, and some return generated through warrant coverage. Given the limited number of merger candidates and the large number of SPAC issuances in 2021, it may be difficult to maintain these historic levels.

Conditions remain conducive for strong debt market activity. Investors have reacted positively post election, and a near-term vaccine rollout would further support economic fundamentals. Pent-up demand and a mountain of dry powder from private equity sponsors should pave the way for a strong market for leveraged buyouts and M&A activity. The search for yield in a low-rate environment will likely drive demand.

In terms of the broader capital markets, although a sense of anticipation and confidence pervades, a few questions remain. The efficacy of a COVID-19 vaccine and the path of the pandemic will likely continue to influence markets, as will the possibility of persistent unemployment in Q1 and Q2. Capital markets appear relatively unfazed by the idea of a new US presidential administration and appear to have priced in differing fiscal approaches around taxation and spending issues. There may be a slight reaction around the US Senate runoff elections in Georgia, but the US markets should continue to lead the world. 

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.

Contact us

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, PwC US

Derek Thomson

Derek Thomson

Capital Markets Research Leader, Deals, PwC US

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