Carl Icahn thinks the market is headed for a bout of serious weakness. Ron Paul is being paid to promote a looming financial crisis on television.
Are these two rich people, one a power-beard-wearing activist investor in love with doing media and the other a wacky ex-politician, onto something? Is the market really headed for a nosedive this summer? Are our financial well-beings at risk all over again?
To be brief, no. First, I define a stock market crash as a market falling 20% to 25% inside a month, maybe quicker. Each day, amidst this swirling black vortex of news, the Dow Jones Industrial Average is falling 200 to 300 points for three to five consecutive days -- selling activity tends to pick up on high volume into closes. For that to transpire, the world will have to head to hell in a handbasket. I don't see that happening, which calls into question what Paul is pitching to aging boomers who have a distrust for government and greaseball brokers named Big Tony.
The reality is that the major financial institutions have turned into heavily regulated entities that are simply unable to partake in the risk-taking ventures that were portrayed kind of lamely in Wall Street 2. Although the Fed's "Great Unwind" from extraordinary policy measures and how it impacts markets is a serious unknown, I do believe the current cast of Fed characters is better equipped to deal with a change in policy stance than in years past.
So, sorry big Ron and bearded Carl, your viewpoints seem a little scare-tactic-esque. Besides, one key area of the market is not displaying the frenzied activity synonymous with the last stages of a stock bubble. That area would be the IPO market.
According to a new report from Ernst & Young, the total number of IPO deals and proceeds declined through the first half of 2015. There were 101 IPOs that raised total proceeds of $19.7 billion -- a 36% decline in the number of deals and a 44% fall in gross proceeds year on year. IPO research firm Renaissance Capital recently noted that 86 IPOs have priced so far this year, a 36% decline from a year ago. Total proceeds from the IPOs amounted to $15.8 billion, a 45% decline.
Now, what I would be watching is deal activity into the end of this month and early fall for signs the market is overheating. Renaissance points out that so far in June, there have been 17 IPOs -- another 17 may price by the end of the month. Should we land 34 IPOs this month, it would be the busiest month since 2000. Obviously, we all know what was going on back then.
Further, I would add here that IPOs continue to be very well-received by investors. From steakhouse Fogo De Chao (FOGO) to wearables maker Fitbit (FIT), the market is embracing new issues enthusiastically. If the market was poised to crash, as Paul suggests, IPOs would be getting muted receptions by investors in spite of having solid financials and good future prospects. Investors would simply be hesitant to put money to work in unproven public companies.
You should be buying shares of your favorite companies right into the teeth of the Greece hysteria, which is likely to be on full display again today. In my view, it's a bunch of high-stakes BS designed to weaken the souls of Greek politicians, while rewarding others in the eurozone. Greece will receive its deal, stocks will rally, and you will be upset that you didn't buy stocks of well-run companies while everyone was panicking.