What the IPO Boom Says About Risk and Sentiment
It’s shaping up to be quite a year for IPOs. Through mid-July, U.S. IPO proceeds reached roughly $140 billion, which already puts the year-to-date total near the full-year record set in 2021 ($142.4 billion). The second quarter alone was notable, with 48 IPOs raising more than $100 billion.
On the positive side, a wide-open IPO market can signal strong activity in capital markets. Companies are willing to go public, investors are willing to provide capital, and the market is open to new growth stories. When companies raise capital to fund expansion, research, new hires, and/or investment, the door to accelerating earnings growth in the future can swing open.
But the issue that tends to bubble up (no pun intended) is that valuations can increasingly reflect very optimistic assumptions about the future. Companies, venture investors, and private-equity sponsors usually do not rush to the public markets when they believe investors are undervaluing their shares. They go public when they think they can fetch a premium. It is also worth noting that many IPOs are also liquidity events, giving early investors, employees, founders, or sponsors a chance to monetize part of their ownership. None of this is automatically a problem, but IPO excitement should not obscure the basic question of whether the price makes sense.
This is essentially the point I made in a recent column regarding SpaceX. There is little doubt that SpaceX is an extraordinary company with significant potential. But a great business does not automatically make a great investment at any price. Hot IPOs often come public with heavy demand, a compelling story, and valuations that require a great deal of future success to be justified. SpaceX’s early trading pattern—surging at first, then giving back those gains and falling below its IPO price—is a useful reminder of how this tends to play out in the short-term. Early investor excitement can be a sentiment trap.
There is also a broader supply-and-demand issue developing in the equity market. For several years, buybacks helped reduce the supply of public shares. Companies were repurchasing stock, and net equity issuance was generally negative. That was supportive for the market because fewer shares were available, all else being equal.
In 2026, that started to shift. Federal Reserve flow-of-funds data show net equity supply turning positive in early 2026 for the first time since 2021. In other words, new issuance is now exceeding share retirements through buybacks and other activity. Supply is growing, and demand must keep up.
Now, to be fair, many large, profitable companies are still shrinking their share counts, and capital returns remain a meaningful part of the market backdrop. The change is that new issuance has become large enough to offset more of that buyback activity, particularly as IPOs and follow-on offerings increase. The direction of travel is notable.
That’s the risk piece. The other side of the IPO equation is sentiment.
When IPO activity spikes, it can suggest that investors are becoming increasingly eager to chase new issues, especially companies tied to a hot theme. Today, that theme is artificial intelligence. We are seeing extraordinary economic activity and investment around data centers, chips, computing power, semiconductors, electrical infrastructure, and related technologies. Many companies tied to that spending are seeing genuine business momentum. But the market can sometimes take a real trend and price it as though the best-case scenario is almost guaranteed.
That is where IPO activity becomes useful as a sentiment gauge. It does not tell us exactly when enthusiasm has gone too far, and it is not a reliable market-timing tool. But it can show where optimism is building and where investors may be willing to accept more uncertainty—and pay too high a price —in exchange for exposure to a powerful story. It is not flashing a warning sign right now, in my view, but it’s worth monitoring.
Bottom Line for Investors
A strong IPO market can be a healthy sign that companies have access to capital and investors are willing to take risk. But it can also be a reminder that enthusiasm and valuation discipline do not always move together.
The key, in my view, is not to treat IPO activity as a market-timing tool. It is better viewed as a sentiment check, one that can show us where optimism is building and where investors may be paying up for popular themes. Innovation and growth are critical and worth owning, but price still matters too.
– Mitch
Tariffs are Coming Back, But Markets Have Seen This Movie Before
After a relatively quiet period following the Supreme Court ruling, tariff policy is moving back into focus. The current 10% global tariff (which President Trump was able to implement for a period of 150 days) is set to expire this week, and replacement duties are in the works. The new approach is expected to rely more heavily on Section 301, which is generally viewed as more legally durable than the emergency authority the Supreme Court rejected earlier this year. For businesses, this creates another round of uncertainty, as the proposed new tariffs could cover as much as 99% of U.S. trade with rates of 10% for more than a dozen trading partners and 12.5% for over 40 others. This week, the administration also threatened a 50% tariff on certain Canadian goods beginning August 19, covering roughly $20 billion of exports to the U.S. This latter set of tariffs carries a lot of headline risk, but for context, it covers just a small slice of the more than $380 billion in Canadian goods exported to America last year. As we’ve argued many times before, we view tariffs as an economic negative, as the cost is ultimately borne by importers, businesses, and consumers. For markets, however, the key question is whether this is new information—and in our view, it isn’t. The expected tariff levels appear broadly similar to those in place before the Supreme Court ruling, when the average U.S. tariff rate was around 17%, versus about 11% today under the temporary measures. Markets handled that earlier regime reasonably well, and we do not anticipate much of a reaction once new measures are put in place.
A Statistical Change Could Temper the Fed’s Preferred Inflation Gauge
The Fed’s preferred inflation gauge may soon look a little ‘better,’ but not because prices are suddenly falling. The Bureau of Economic Analysis is preparing changes to how it measures three categories inside the personal-consumption expenditures (PCE) price index: software, investment management services, and legal services. Economists estimate the revisions could lower core PCE inflation by roughly 0.2% to 0.3% when the August data are released on September 30. Some may wonder if this is the agency’s attempt to shift the narrative on inflation, but the reality is that statistical changes happen fairly regularly. In this case, it is notable that PCE has been running hotter than CPI, with economists estimating Core PCE near 3.3% in June versus core CPI at 2.6%.
Part of the gap appears tied to quirky measurement issues. For example, the current software index has captured some price pressure from hardware items affected by AI demand, while investment management costs have risen partly because market gains lift fees tied to assets under management. Even after the revisions, core PCE would still be well above the Fed’s 2% target. But at a time when some Fed officials are debating whether higher rates may be needed, a slightly lower inflation reading could weaken the case for another hike.
Private Equity’s Liquidity Trade-Off is Becoming More Visible in Markets
Private equity’s liquidity ‘reality’ is becoming harder to ignore. According to PitchBook, the net asset value of U.S. private-equity assets stuck in funds at least 10 years old reached a record $348.5 billion at the end of 2025. That is 3.5 times the level from 2015 and more than 100 times the amount in 2005. These so-called “zombie funds” are typically no longer raising capital or buying new companies. Instead, they are holding remaining assets that managers have struggled to sell. The problem stems partly from timing. Many funds bought companies during the 2020– 2021 boom, when interest rates were near zero and valuations were high. Today, higher borrowing costs have made buyers less willing to pay those peak prices. The backlog may continue to grow. Funds that are seven to nine years old now hold an estimated $512.7 billion in net asset value, more than double the 2015 level. More broadly, Preqin estimates that unsold North American private-equity portfolio companies totaled $3.91 trillion as of September 2025, representing 74% of all North American private-equity assets on balance sheets. For investors, it’s a reminder that private investments can offer access to different opportunities, but they also come with less transparency, less liquidity, and a greater reliance on managers’ ability to sell assets at attractive prices. Public markets, by contrast, offer daily liquidity and transparent pricing.
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