No Corrections In 2021?

One other point of contention is whether this is even the 2nd year of a bull run at all. Many believe the bull market started in March 2009. The stock market crashes in December 2018 and March 2020 didn’t end the long-term cycles. They were just large corrections. That explains why there is such euphoria among retail investors despite the current run being slightly over 1 year old. There was no such euphoria in 2010.

Equity Supply Is Exploding

One of the biggest potential catalysts for a correction might be the supply of equity. Investors are desperate to own stocks. Wall Street is always more than willing to securitize anything that’s going up in value. Wall Street will turn anything it can into a financial product. In this case, its straightforward because it’s the stock market.

As you can see from the top chart below, the 12 month average of new US corporate equity issuance is at a record high. This time both financial and non-financial issuances are high unlike in the 2000s bubble when just non-financial was high. After the financial crisis, only financial was elevated. The past 12 months combine all the issuances during the recession when uncertainty was high with the recent issuances that have been bolstered by investor euphoria.

There is nothing like panic and euphoria all in a 12-month span that will make issuances explode. The bottom chart above shows IPO plus SEO issuances are at a record high. That’s mostly due to SEOs. That’s because during the recession there were a lot of secondaries to keep companies effected by the pandemic afloat. No companies were interested in going public last spring.

The spring of 2020 was the most unique period in capital markets ever because usually in recessions companies want to raise money but they can’t. In this case, the Fed opened a window for them to raise money. Now stable companies are buying back shares at higher prices and IPOs are becoming more popular. We went from early cycle to late-cycle activity in financial markets in about a year.

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Disclaimer: The content in this article is for general informational and entertainment purposes only and should not be construed as financial advice. You agree that any decision you make will be ...

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