IPO Markets Fighting Forces For Escape Velocity: Inflation, Rates, Labor and AI

Executive Summary

Last month, the market faced a test, and it passed, at least on the scoreboard. There was a mid-month hawkish shock: back-to-back hot inflation prints sent the 30-year above 5% and put a Fed rate hike back on the table. Stocks flinched but quickly recovered as oil fell more than -13%, easing the inflation scare that had rattled the bond market. With that tail out of the way, the AI and semiconductor engine did the rest, carrying the S&P 500, Nasdaq, Dow, and Russell 2000 to fresh records.  

Last week, the S&P 500 returned -2.5% for the week. The index’s historic weekly run of weekly gains came to an abrupt halt, with stocks hit by a tech selloff and higher bond yields after a solid jobs report added to bets the Federal Reserve’s next interest-rate move will be a hike. Mid cap (-1.0%) and small cap (-2.9%) stocks also fell. Within the S&P 500, consumer discretionary (-6.1%) and technology (-5.4%) and were the worst performing sectors; energy (+2.5%) and healthcare (+2.3%) were the leaders. EAFE markets returned -1.4% with Europe (-1.4%) hit hardest while EM markets returned -1.9% led lower by Korea (-5.3%) and Brazil (-4.5%). 

Stronger-than-expected May payrolls report helped push Treasury yields higher on Friday. The payrolls surprise supported the view that the U.S. economy remains resilient.  The absence of increasing wage price pressures could keep the Federal Reserve on a path of holding for longer rather than hiking.  U.S. Treasuries generated losses for the week, with yields moving higher across most maturities as solid economic data, oil price volatility, and some hawkish commentary from Fed officials fueled concerns that inflation pressures could keep monetary policy restrictive. (Bond prices and yields move in opposite directions.) After ending the prior week at 4.44%, the yield on the benchmark 10-year U.S. Treasury note increased to around 4.55% by Friday afternoon.  

Investment-grade corporate bonds also declined, underperforming Treasuries, although new issues were generally oversubscribed. Year-to-date supply in the market is at its fastest pace since 2020 as the hyperscalers continue to issue debt to fund their multibillion dollar capex data center development requirements. 

SpaceX 

SpaceX's highly anticipated initial public offering (IPO) is scheduled for this week, on the Nasdaq under the ticker symbol SPCX. Priced at $135 per share, the offering aims to raise $75 billion and will value the Elon Musk–led aerospace and tech giant at roughly $1.75 trillion, making it the largest public debut in history. 

Because of rule changes by Nasdaq, the stock will fast-track into the Nasdaq-100 index just 15 trading days after listing, which will automatically force index funds holding 401(k)s and pensions to purchase billions of dollars in shares.  The battle amongst fundamentals, technical demand (eg ETF buying) and sentiment (Musk followers) will ultimately be reflected in the stock price. However, time horizon is critical and investors should remember that IPO stocks do not always go up in a straight line. 

• IPO trading history suggests caution.  A Truist analysis of 30 major tech IPOs found average 1^st year max drawdowns of 55%, with many stocks delivering weak 6 and 12 month returns despite early excitement. 

• Some sell side analysts believe that after the initial IPO enthusiasm fades, investors will focus more critically on profitability, execution risks, growth sustainability, and whether the valuation is justified. 

Analysis of 30 Major IPOs and Performance During Their 1st Year Out of the Gate 

Company	1 week	1 month	3 months	6 months	12 months	Year 1 Max Drawdown
Facebook	-17%	-18%	-45%	-42%	-31%	-54%
Twitter	0%	0%	11%	-32%	-10%	-58%
Alibaba	-4%	-6%	18%	-9%	-30%	-49%
Shopify	7%	38%	14%	9%	2%	-52%
Block	-9%	-6%	-24%	-28%	-7%	-44%
Twilio	27%	42%	125%	20%	3%	-66%
Snap	-7%	-8%	-13%	-39%	-26%	-56%
Okta	4%	1%	0%	18%	64%	-20%
MongoDB	-3%	-7%	-9%	20%	103%	-26%
Dropbox	10%	2%	18%	-7%	-24%	-54%
Spotify	4%	14%	13%	21%	-3%	-46%
Lyft	-5%	-23%	-16%	-46%	-65%	-79%
Zoom	5%	45%	54%	9%	142%	-40%
Pinterest	18%	9%	6%	5%	-28%	-70%
Uber	1%	3%	-4%	-34%	-21%	-68%
CrowdStrike	33%	22%	19%	-18%	64%	-67%
Cloudflare	10%	-13%	0%	6%	90%	-32%
Datadog	-14%	-16%	1%	-15%	128%	-42%
Snowflake	-14%	-5%	30%	-9%	27%	-52%
Palantir	5%	13%	164%	132%	153%	-53%
DoorDash	-17%	-19%	-28%	-28%	-13%	-47%
Airbnb	2%	3%	37%	0%	25%	-39%
Affirm	9%	44%	-29%	-40%	-26%	-65%
Roblox	10%	2%	31%	22%	-40%	-69%
Coupang	-11%	-7%	-23%	-36%	-65%	-64%
Coinbase	-5%	-19%	-30%	-24%	-55%	-57%
Robinhood	46%	35%	2%	-64%	-74%	-90%
Rivian	45%	15%	-36%	-77%	-67%	-88%
Arm Holdings	-18%	-20%	11%	106%	132%	-43%
CoreWeave	20%	5%	300%	217%	87%	-65%
Median	3%	1%	4%	-9%	-9%	-54%
Average	4%	4%	20%	1%	14%	-55%
% Positive	57%	57%	57%	43%	43%	n/a

Note: Performance is gross of any RS advisory fees. Source: MarketWatch and Truist 

Net returns include manager fees and a hypothetical Robertson Stephens annual investment advisory fee. Actual client fees will vary based on the rate agreed Upon with the client as documented in the individual client investment advisory agreement with Robertson Stephens. 

Hypothetical growth of $100,000 to show the effect of advisory fees on investment returns over time