To say that the recent Snapchat IPO was a success is something of an understatement. Even though the company was forced to reduce its issue price to $17 the shares very quickly rallied well above $20. While the shares hit a high of $29.44 they have since consolidated just above the $22 mark. This still gives the company a valuation in excess of $20 billion even though it is non-profitable and unlikely to be so any time soon. So, will the ongoing market correction force technology IPOs to hold back for now?
Investor sentiment
On the whole there is certainly an appetite for technology IPOs although just recently the US stock market has come off an all-time high amid concerns about political pressure building against Donald Trump. He has promised for some time to reform the US medical care system in light of changes made by previous President Obama. Despite the fact that he holds a majority in both political houses he was unable to force through his suggested changes and withdrew the bill. This was a shock to investors and gave the market a reality check, hence a consolidation period.
Is this the end of the rally?
We will soon see whether investors return after the recent falls although one thing stands out, the fact that active fund managers have doubled down their bets on cyclical stocks. They believe that the recent retraction of the market is short-term and we have yet to enter the final phase of the bull-run. If this is the case then sentiment for technology-based IPOs will likely remain intact and companies will be chomping at the bit to get onto the market!
Even if Donald Trump is not able to achieve half of what he promised during the presidential elections he will still have a greater impact upon the US economy than President Obama in his final years. We have so far seen little in the way of changes to the real estate sector, just the beginning of protectionist strategies for the US economy and no expected adjustments to the tax system. As and when we see at least partial movement in these areas this could reignite investor appetite.
Write off Donald Trump at your peril
We have said this time and time again, Donald Trump may well be a loose cannon but you write him off at your peril. This is a man who has survived more controversy during the last six months than many presidents survive during their whole political careers. We have seen rumours of Russian intervention, difficult overseas relations and a whole raft of rejections and resignations from his preferred political team. Yet still the man seems to be respected by investors hopeful that he can deliver on anywhere near his 4% annual economic growth figure – which is more than double that of the Federal Reserve.
There is no doubt that the US is entering a period of political change the like of which we have not seen for decades. Who would have thought that an “outsider” such as Donald Trump could make it to the White House with his controversial and very strong opinions? Who would have thought that the US stock market would be prompted into a rally which has only just ended with what many expect to be a short-term consolidation? America is taking a leap into the unknown but it seems that stock markets prefer the aspirations of Donald Trump to the traditional unambitious policies of years gone by.