U.S. equity financing has been recovering from its 2023 low and could accelerate significantly in the coming months: a wave of mega-IPOs is lining up, with individual offerings potentially raising hundreds of billions of dollars. The market’s most immediate concern is that these new listings could drain liquidity from existing U.S. equities, particularly as index fund allocations and large-cap positions are already elevated.
SpaceX, OpenAI, and Anthropic are set to launch their highly anticipated IPOs on U.S. markets in quick succession. SpaceX’s S-1 prospectus was officially filed last week, with an expected listing date in the second week of June, making it the first of the three companies to go public. OpenAI plans to list as early as September this year, significantly ahead of prior market expectations, while Anthropic may seek an IPO as soon as October this year.
According to Zhui Feng Trading Desk, Deutsche Bank securities strategist Parag Thatte wrote in a report on May 22: “Under our demand-supply framework, a rebound in equity issuance could indeed have a negative impact on stocks, but the effect is modest; both past academic literature and empirical evidence from previous issuance waves clearly show that issuance surges are typically accompanied by strong stock market returns, as they occur during periods of strong demand for equities.”
The core insight of this study is not that "issuance is harmless," but rather that "issuance is not the primary cause." An increase in supply may cause short-term volatility; if the largest IPO is isolated in a model, it could drag down the market by approximately 1%. If IPOs are concentrated and crowd out other stocks within index benchmarks, the impact could be even greater. However, this still resembles a common trigger for a pullback rather than a sufficient condition for ending a bull market. The U.S. stock market experiences a pullback of more than 3% roughly every one to two months, with numerous potential catalysts—IPOs being just one of them.
What truly supports this judgment is that demand has not collapsed: households still hold high cash balances, corporate profit growth remains strong, equity funds continue to flow in, and buyback announcements remain at elevated levels. The issue isn’t whether there’s enough money to buy new shares, but whether demand can continue to outpace supply; another key constraint is that positions in large-cap stocks, particularly large-cap tech stocks, are already relatively high—this is where sensitivity is greater.
This round of token offerings seems large, but it's not excessive when viewed in the context of the entire U.S. stock market.
The quarterly pace of U.S. equity offerings has risen from a low of approximately $30 billion at the beginning of 2023 to around $120 billion currently. Over the coming months, a wave of mega-IPOs could push this pace up another notch.
Looking solely at IPOs, some of the upcoming large projects could raise amounts equivalent to the total U.S. public fundraising over the past nine months. Expanding the scope to include all U.S. equity offerings, including secondary offerings, this would amount to roughly two months of issuance.
But viewed from a different perspective, the pressure is much lighter. Even the largest anticipated IPO raises less than 0.1% of the current S&P 500’s total market capitalization. This is why “increased supply” alone is insufficient to conclude that “the U.S. stock market must fall”: while the absolute amount is eye-catching, it is not extreme relative to the overall market size.
Historically, issuance waves have been more like byproducts of bull markets.
Over the past three decades, U.S. equities have experienced several cycles of increased equity issuance. Historically, stock markets have typically performed strongly during these periods: in the first three months after the issuance surge begins, the median return of the S&P 500 is around 8%; over a 12-month period, returns exceed 20%.
The exception is also clear: during the 2008–2009 global financial crisis, entities such as financial institutions were forced to raise capital, and the increase in issuance occurred amid massive sell-offs. This type of “forced recapitalization” issuance is fundamentally different from companies raising capital during normal market conditions when valuations and demand are favorable.
Academic literature also supports this causal direction: stronger stock markets and higher expected profitability typically precede, and drive, issuance waves; the issuance itself has limited reverse impact on the market during the same period. More problematic is the second half—after an issuance wave, stock market returns eventually weaken, but this "eventually" can take a very long time and cannot be used as a simple short-term sell signal.
The model estimates an impact of approximately 1%, but concentrated listings will amplify the perceived effect.
The demand-supply framework considers several factors together: changes in investor positioning, stock inflows, buybacks, and issuances. Issuance represents an increase in supply and, all else being equal, is naturally a negative factor.
Calculations suggest that the largest IPO alone could cause the market to decline by approximately 1%. If listings are highly concentrated or if new stocks crowd out existing components in index benchmarks, the actual pressure could be even greater.
However, it’s important to distinguish between “downside risk” and “systemic selling pressure.” Drawdowns of more than 3% occur in U.S. equities on average every one to two months. A wave of IPOs could act as a catalyst for one such drawdown, but it does not necessarily alter the broader market direction. Unless demand weakens simultaneously, a supply shock alone is unlikely to independently crush the index.
Demand side is still holding up: cash, earnings, and buybacks are all providing support.
The household sector remains a key buffer. Cash balances accumulated during the pandemic remain high, with households holding approximately $3.3 trillion more in cash than the 2010–2019 trend level. Cash holdings relative to personal income are also elevated, enabling households to allocate a larger share of additional savings toward financial assets, including equities.
Earnings are another支撑. Since 2003, the correlation between stock fund inflows and S&P 500 earnings growth has been approximately 54%. The first-quarter earnings growth, described as one of the strongest in over 20 years, explains why capital continues to flow into equity assets.
Buybacks are also a significant component of demand. The strong performance of S&P 500 buyback announcements indicates that companies themselves continue to provide buying pressure. Increased issuance adds supply, while buybacks and capital inflows provide absorption capacity; the current balance has not clearly shifted toward supply.
The position is not broadly overheated; congestion is primarily concentrated in large-cap tech stocks.
The overall equity positioning is only slightly overweight, at the 53rd percentile since 2010. Active investors have lower positioning, around the 47th percentile, near neutral; systematic strategies are somewhat more overweight, at approximately the 64th percentile.
The real overcrowding is in large-cap stocks, particularly large-cap tech. Large-cap allocations are at the 85th percentile, while large-cap tech has reached the 93rd percentile. This means that if an IPO surge triggers portfolio rebalancing, the sectors most likely to be targeted by the market are not "all stocks" overall, but those already heavily held.
Industry allocation is also uneven. Energy has a high weighting, at the 87th percentile; large-cap growth and technology are slightly overweighted. Financials are significantly underweighted, at the 7th percentile; materials are even more extreme, at the 0th percentile. The U.S. stock market is not evenly weighted across sectors, and supply shocks will not affect every area equally.
Cash flow is not broadly optimistic; strength lies primarily in the U.S. and technology.
Over the past week, stock fund inflows declined to $2.4 billion, showing a clear slowdown. U.S. stock funds still saw $9.5 billion in inflows, and broad global funds received $10.3 billion, but there were significant outflows outside the United States.
Japanese equity funds saw $4.4 billion in outflows, the largest in five weeks; European funds experienced $2.3 billion in outflows, marking six consecutive weeks of outflows; emerging market funds recorded $7.9 billion in outflows, also for six consecutive weeks. Among these, China-related funds saw $9.7 billion in outflows, while South Korea and Taiwan attracted $3 billion and $1.7 billion, respectively.
Industry funds have become more concentrated. Technology funds saw inflows of $9 billion, the largest in seven months. Meanwhile, bond funds attracted $30.5 billion in inflows, reaching a five-month high. Funds did not flow uniformly into risk assets but instead diversified across U.S. equities, technology, and bonds.
This is also the key area to watch amid the IPO surge: not the number of new listings themselves, but whether demand continues to concentrate on a few strong assets. If earnings, buybacks, and U.S. stock inflows continue to provide support, the wave of issuances will remain little more than short-term noise; but if tech positioning becomes less crowded and stock inflows cool, supply pressure will shift from a “roughly 1% model disturbance” into a much harder-to-absorb issue.
Article by Zhao Ying, Source: Wall Street Journal