By ICR Capital Team | article
After a disappointing 2022, the capital markets seem to be showing some early signs of life in 2023. The S&P and NASDAQ are up 9% and 17%, respectively, at the end of January, and the overperformance vs. the Dow highlight that growth stocks may be back “in favor.” The VIX — the market’s fear gauge — is below 18 for the first time in 13 months, indicating a period of relative calm in the market. The “melt up” in Peloton and Meta after positive numbers and the resilience of Apple and Alphabet after disappointing numbers also underscore that market sentiment is bullish and investors are willing to overlook short-term setbacks. The Class of 2021 IPOs are up 30% in only a month.
A combination of technical trading dynamics and Street-wide optimism around economic recovery are driving the market’s upward trend. Systematic traders, prompted by signals such as volatility, macro trends, and rates, fueled the January stock market rally, driving continued momentum and demand in the markets.
Even the jobs numbers this morning — which were “bad” because they were “too good” — failed to throw cold water on the party. After an initial negative reaction, markets have recovered, and investors are considering the possibility of a “Goldilocks Scenario”: tamed inflation plus full employment and solid consumption plus large corporate war chests. Despite the “too good” jobs numbers this morning, which indicate the possibility of further rate hikes, the market took the news in stride and saw only a 1% dip. The bullish sentiment was further highlighted by the lack of a visceral reaction to disappointing Alphabet and Apple earnings. This indicates that the market is bullish and willing to overlook short-term setbacks.
The convertible market is also thriving, with the market up 8% YTD. Investors are eager to put their capital to work and are seeking opportunities to invest in convertible securities. The recent $435 million convertible deal by Integer Holdings, a $2.3 billion market cap healthcare company, received a strong response from investors. The deal was massively oversubscribed, the deal priced at the best end of the price talk, and a source close to deal mentioned that the order book was the best in 1.5 years.
The market stability and bullish investor sentiment mean favorable terms for issuers, which makes this an ideal time for companies to consider accessing the equity or convertible market. Barring any exogenous shock to the global economy, we believe that the remainder of Q1 will be a busy period for the capital markets as more issuers come to the market after earnings and take advantage of the market window.
Ready to learn more about timing for accessing the equity or convertible market? Reach out.