The super IPO wave is coming—will the US stock market "bleed" and crash?

US equity financing has rebounded since the lows of 2023 and may significantly accelerate in the coming months: a batch of mega IPOs are lining up, with each potentially raising hundreds of billions of dollars. The most direct concern in the market is that these new stocks will "draw blood" from the existing US stocks, especially when index funds and large-cap positions are already high.

SpaceX, OpenAI, Anthropic’s “super IPOs” are flocking to the US market. SpaceX’s prospectus (S-1) was officially disclosed last week, with the listing expected in the second week of June, marking it as the first among the three companies to complete a public offering. OpenAI aims to go public as soon as September this year, much earlier than previous market expectations. Anthropic might seek a listing as early as October.

According to Chase Wind Trading Desk, Deutsche Bank Securities strategist Parag Thatte wrote in a May 22 report: “Within our demand-supply framework, the rebound in issuance may indeed have a negative impact on equities, but only mildly so; past academic literature and empirical evidence during issuance waves clearly show that issuance waves usually coincide with strong stock market returns because they happen during periods of strong stock demand.”

The core conclusion of this research is not “issuance is harmless,” but “issuance is not the main cause.” Increased supply brings short-term disturbances; modeling the largest IPO separately might drag the market by about 1%. If the listing pace is concentrated, crowding out other stocks in the index benchmarks, the impact could be greater. But this is still more like a common retracement trigger, not a sufficient condition for the end of a bull market. On average, the US market sees retracements of more than 3% every 1–2 months, caused by various catalysts, with IPOs being just one of them.

The real support for this judgement lies in the sustained demand side. Households still have high cash balances, corporate profit growth is strong, equity funds are still seeing inflows, and buyback announcements remain elevated. The issue isn’t whether there’s enough money to buy new stocks, but whether demand can continue to outweigh supply; another boundary is large-cap stocks, especially large-cap tech, whose positions are already high, making that area more sensitive.

This wave of issuances seems big, but is not exaggerated within the entire US market

US equity issuance has risen from about $30 billion at the start of 2023, to about $120 billion currently. In the coming months, a batch of mega IPOs may push issuance up another notch.

Looking only at IPOs, some upcoming large cases may raise amounts equivalent to the total US IPO volume over the past nine months. If you expand to all US equity issuance, including secondary offerings, this equals about two months’ issuance volume.

Yet on a different scale, the pressure is much less. Even the largest expected IPOs only account for slightly more than 0.1% of the current S&P 500 total market capitalization. This is why “increased supply” alone is not enough to conclude “US stocks must fall”: The absolute dollar amounts are eye-catching, but relative to market size, not extreme.

Historically, issuance waves are more like companions of bull markets

Over the past 30 years, the US market has had several upward cycles in equity issuance. In historical samples, stocks typically performed strongly during these periods: in the first three months after an issuance wave starts, the median S&P 500 return is about 8%; stretch it to 12 months, and returns exceed 20%.

Exceptions are clear: during the 2008–2009 global financial crisis, financial institutions and others were forced to raise capital, increasing issuance amid heavy selloffs. This kind of “forced recapitalization” issuance is not the same as companies seizing favorable market windows for financing under normal conditions.

Academic literature also leans toward this logic: stronger markets and higher expected profitability tend to appear first, then trigger issuance waves; issuance itself has only limited negative impact on markets at the time. The tricky part is later—the period after an issuance wave, when returns eventually weaken, but this “eventually” can take a while, and shouldn’t be used simplistically as a short-term sell signal.

Model suggests impact of 1%, but concentrated listings amplify effects

The demand-supply framework considers several forces: changes in investor positions, stock fund inflows, buybacks, issuance. Issuance increases supply and, all else equal, is a negative factor.

Calculations show the largest IPOs alone might cause the market to fall about 1%. If listing dates are highly concentrated, or new stocks entering index benchmarks squeeze out other constituents, actual pressure could be bigger.

But it’s important to distinguish “downside risk” from “systemic selling pressure.” Retracements of over 3% occur on average every 1–2 months. The IPO wave may catalyze a particular pullback, but does not necessarily change market direction. Unless demand weakens simultaneously, supply shocks alone are unlikely to topple the index.

Demand is still holding up: cash, earnings, buybacks are supporting

The household sector remains a key buffer. Cash balances accumulated during the pandemic are still very high, and households’ cash holdings are about $3.3 trillion above the trend from 2010–2019. Relative to personal income, cash holdings are also elevated, enabling households to allocate a larger share of incremental savings to financial assets, including equities.

Earnings are another support. Inflows to equity funds have a correlation of about 54% with S&P 500 earnings growth since 2003. First quarter earnings growth was described as one of the strongest in more than 20 years, explaining why money still wants to follow equity assets.

Buybacks are also an important part of the demand side. S&P 500 buyback announcements remain robust, meaning companies themselves are still supporting the market. Issuance increases supply, buybacks and fund inflows provide absorption; at present, the balance hasn’t obviously tilted to the supply side.

Positions aren’t overheated broadly, crowding is mainly in large-cap tech

Overall equity positions are only slightly overweight, in the 53rd percentile since 2010. Active investor positions are even lower, about the 47th percentile, near neutral; systematic strategies are a bit higher at the 64th percentile.

The real crowding is in large caps, especially large-cap tech. Large-cap stock positions are at the 85th percentile, and large-cap tech reaches the 93rd percentile. This means if the IPO wave triggers capital rebalancing, the sectors most likely to be targeted aren’t “all stocks,” but those already heavily held.

Industry distribution is also uneven. Energy positions are high, at the 87th percentile; large-cap growth and tech are slightly overweight overall. Financials are significantly underweighted, at the 7th percentile; materials are even more extreme at the 0th percentile. The US market is not evenly positioned, and supply shocks won’t hit every corner equally.

Fund flows aren't all optimistic, the strength is in US and tech

Last week, equity fund inflows dropped to $2.4 billion, markedly slowing. US equity funds still saw $9.5 billion inflows, broad global funds had $10.3 billion, but non-US regions saw sizable outflows.

Japanese equity funds saw $4.4 billion outflow, the largest in five weeks; Europe dropped $2.3 billion, the sixth consecutive week of outflows; emerging markets lost $7.9 billion, also six weeks running. Among them, China-related funds had $9.7 billion outflow, while Korea and Taiwan netted $3 billion and $1.7 billion, respectively.

Sector flows are even more concentrated. Tech funds drew in $9 billion, the largest in seven months. At the same time, bond funds attracted $30.5 billion, hitting a five-month high. Funds aren’t flowing in one-way to risk assets, but are split among US stocks, tech, and bonds.

This is also the key thing to watch in the IPO wave: not the number of new stocks itself, but whether demand remains concentrated in a few strong assets. If earnings, buybacks, and US equity inflows continue to underpin, the issuance wave is more of short-term noise; if tech crowding loosens and equity inflows cool, supply pressure could shift from a “1% model disturbance” to a much tougher issue to digest.

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