Record-high IPOs will crash the US stock market? Deutsche Bank: That's not true—markets often perform strongly during IPO booms.

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The current US IPO market is experiencing a wave of intensive large-scale stock issuances, leading to the hottest market question: Will this wave of “massive supply” drain liquidity and crush US stocks?

Deutsche Bank strategist Binky Chadha and others recently provided a clear answer. The strategists systematically reviewed historical data from multiple IPO cycles over the past decades, combined with academic literature and empirical studies, and concluded: IPO waves usually coincide with strong market performance rather than triggering a market decline.

Strategist Jim Reid noted that this is one of the most frequently asked questions among his clients. In his view, such concerns have historically been misplaced. The firm also admits that a large IPO in isolation may indeed exert about a 1% drag on the market, but every one to two months, the US stock market experiences pullbacks of 3% or more for various reasons, with IPO supply being just one of many factors.

How big is the IPO wave? First, quantify the scale

Since early 2023, the scale of US stock issuances has been rising, with quarterly issuance climbing from a low of about $30 billion to the current $120 billion. The SpaceX IPO is imminent. In the coming months, several high-profile giants like OpenAI are expected to go public one after another, with single financings potentially reaching tens of billions of dollars.

Sounds alarming? But on the scale of the overall market, even the largest anticipated IPO accounts for just over 0.1% of the S&P 500’s total market capitalization.

Investors' worry is this: New listings require capital, so buyers need to free up funds by selling existing stocks, thus pressuring the market as a whole. This logic sounds reasonable, but the data does not support it.

Historical pattern: During IPO peaks, the stock market often performs better

Over the past thirty years, during multiple IPO boom periods, the median return for US stocks was: about 8% over three months, and over 20% over twelve months.

Why is this the case? The logic is straightforward: Companies choose to go public because of strong market demand, solid earnings momentum, and high investor risk appetite.

In other words, it’s the strong market that creates the IPOs, not IPOs that crash the market.

Academic research does find that issuance waves ultimately accompany weaker returns—but the key point is, this “ultimately” often comes much later, and the market usually has already risen sharply by then.

The only exception was during the financial crisis of 2008-2009. Back then, equity issuances were forced, taking place against the backdrop of a systemic crisis, which is fundamentally different.

How much supply pressure? It's stronger demand that really matters

From a supply-demand perspective, a large IPO in isolation may indeed exert a roughly 1% drag on the market, and intensive issuances may cause short-term volatility.

But disturbances of this magnitude are not uncommon. Every one to two months, the US stock market pulls back 3% or more for a variety of reasons, with IPO supply being just one of many factors.

More importantly, current market demand is extremely robust: money continues to flow in, corporate earnings are growing steadily, overall stock allocations remain moderate, buyback activity is strong, and household balance sheets have enough room to absorb new supply.

“Strong demand, not excessive supply, is likely to be the defining feature of this IPO wave.” This is the core conclusion of strategist Chadha’s framework.

Is it 1999 or 2000 now?

Deutsche Bank used a vivid analogy to describe the current market state: “It feels more like 1999, not 2000.”

In other words, the party isn’t over yet, but it’s important to recognize it eventually will end. Returns typically weaken after an issuance wave, but the timing is uncertain—and before that, there’s often another period of market strength.

So, Deutsche Bank says, regardless of whether we eventually encounter “the year 2000” (the dot-com bubble era), for now it still feels like 1999.

Risk Disclosure and DisclaimerThe market carries risk, and investment requires caution. This article does not constitute personal investment advice and does not take into account the unique investment objectives, financial circumstances, or needs of individual users. Users should consider whether any views, opinions, or conclusions in this article are appropriate to their specific circumstances. Investments based on this are at your own risk. ```