The Federal Reserve continues to risk its credibility every month by anchoring interest rates near zero and purchasing $120 billion in bonds. The Fed's bond-buying program has created ample liquidity during the pandemic by keeping interest rates low, suppressing volatility across multiple asset classes, which has resulted in boom times for financial markets.  

As a result of the Fed's easy money policies, stocks are at record highs, and equity valuations are considered at nosebleed levels. This has created optimism for US initial public offerings - where companies have already raised $171 billion, eclipsing all of 2020 of $168 billion, according to a new report via Dealogic. 

The IPO gold rush is set to launch into hyperdrive in the second half of the year as Didi Chuxing Technology Co Ltd, Robinhood Markets Inc, Rivian Automotive LLC, and Krispy Kreme Doughnuts, Inc are set to hit public markets. 

"If the markets hang in anywhere near where they are right now, we are going to be incredibly busy this summer and into the fall with IPOs," said Eddie Molloy, co-head of US equity capital markets at Morgan Stanley, who Reuters quoted. 

"Trees don't grow to the sky forever, so you're not going to have a record volume every year. But assuming stability, we'd also expect a busy 2022," Molloy said. 

The summer's tidal wave of companies going public the traditional way comes after a speculative frenzy via special purpose acquisition that began in the summer of 2020 and lasted through early 2021. The latest plunge in deal-making through SPACs suggests the bubble has popped as the market has been inundated with supply.  

From June through August, companies IPO-ing could raise more than $40 billion - which would surpass the previous record of $32 billion over the same period last year, Dealogic data showed, going back as early as 1995. These figures don't include money raised via SPACs, which have slowed in recent months. 

Source: WSJ

Bankers told WSJ that they are working with dozens of companies that have confidentially filed for IPOs and will begin roadshows in the coming weeks. 

Jim Cooney, head of America's equity capital markets at BofA, said, "as prolific as issuance was last summer, we believe this year will exceed that. It's on track to be the busiest yet." 

Dealogic data showed IPOs this year have had an average one-day gain of about 40.5%, compared with 28.2% last year and 21.7% in 2019. The average one-week return this year is 35.7%, higher than the previous two years. 

Last month, US Securities and Exchange Commission Chairman Gary Gensler told Congress that the "once-in-a-generation" level of traditional IPOs, the rise of SPACs, and cryptocurrencies had stretched the agency thin, and funding is needed to increase headcount. 

... and adding more to this speculative madness this summer, Robinhood is set to roll out a new product called "IPO Access" that will give amateur investors access to IPO shares.

One thing that could derail the speculative mania is volatility from the Fed's expected address to the idea of when it will start pulling back its bond-buying - that may happen sometime this summer.