The Fear of R Sweeps Wall Street... IPOs Plunge 97%, M&A Also Stagnant

[Image source=Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] As recession warning signals have intensified this year, Wall Street in the United States is also freezing up. The initial public offering (IPO) market, which heated up the New York Stock Exchange last year, has plummeted by a staggering 97% compared to its previous peak, and mergers and acquisitions (M&A) are also sluggish.

According to financial information firm Dealogic on the 3rd (local time), the U.S. IPO market in the second quarter was valued at $3.88 billion, down 68.98% from the previous quarter ($12.51 billion). Compared to the second quarter of last year ($58.21 billion), it decreased by 93.33%. Compared to the record high in the first quarter of 2021 ($140.8 billion), it has dropped by a massive 97.24%.

M&A is also slowing down. Last year, the global M&A volume approached $6 trillion. Although the M&A volume in the first and second quarters of this year still maintained a high level of around $1 trillion compared to the past average, the uncertain economic outlook is gradually becoming an obstacle. The Wall Street Journal (WSJ) reported, "The pace of deal closures has noticeably slowed recently," describing it as "preparing for recession uncertainties."

This is exactly as David Solomon, CEO of Goldman Sachs, warned after the pandemic, observing the rapid recovery of the capital market as "unsustainable."

Currently, the market expects that until U.S. inflation, which is at its highest level in over 40 years, and the economic outlook improve, it will be difficult for the IPO and M&A markets to regain momentum. Walgreens Boots Alliance, a major U.S. retail pharmacy chain, recently announced the withdrawal of the sale of Boots and Number 7 Beauty. Kohl's Corporation also halted sale discussions with a franchise group, citing the weak financial market as the reason.

As the Federal Reserve's tightening accelerates and recession concerns grow, corporate sales activities have also been put on hold. WSJ reported, "The rise in interest rates and stock market crashes have also impacted the deal financing market."

The S&P 500 index, reflecting the stock prices of the top 500 U.S. companies, fell by 20.58% in the first half of this year alone. This is the worst decline for the first half of the year since 1970. Glen Shore, an analyst at Evercore, said, "CEO confidence is the core of a strong deal market, but that confidence is shaking," adding, "A weak and unstable capital market is another obstacle."

Michael Pellory, an economist at JP Morgan, said the U.S. is dangerously close to a recession and downgraded the growth rate forecasts for the second and third quarters to 1% each. The previous forecasts were 2.5% and 2.0%, respectively.