Bulls Are Going To Take A Header As New IPOs Are Flooding The Market With Supply And Overwhelming The Demand

by Umar Farooq
 
The upcoming onslaught of IPOs is going to cause the much anticipated short term pause in the markets, according to Jim Cramer, host of the Mad Money. “I keep thinking back to March of 2014, the last time deals started coming at a fever pitch. That was the era where we were seeing companies come public at a nine or ten times enterprise-to-sales valuation and the market loved it… right up until it didn’t,” the “Mad Money” host said.
 
Cramer pointed to recent back-to-back IPOs of retailer Canada Goose and software company MuleSoft. “I always says that what ultimately kills the bull is supply, because the stock market, like any other market, is all about supply and demand. When the market’s roaring, more companies will want to come public, and sooner or later we get so many IPOs that the market’s flooded with supply and it overwhelms the demand,” the “Mad Money” host said.
 
That could result in the market pause so many analysts have been predicting since the rally began, Cramer said. “Do you know that this might be my 20th IPO cycle in 37 years where I see the supply coming, and it looks to me like we’re white water rafting together. And we hear the falls, but we’re having such a good time we say to ourselves, ‘Why stop?'” he asked. “Well, I’ll tell you why. The bottom of the waterfall is too far from here. Nobody makes it out alive,” Cramer continued. “So, forgive me, but if IPOs keep coming at this torrid pace … I’m eventually going to have to tell you to get out of the raft.”
 
One of the first events of March is the heavily oversubscribed Snap IPO, which priced at $17 per share and would value the Snapchat company at about $24 billion. It is the first big tech IPO since Alibaba went public in 2014.
 

Source: stockcharts
Sam Stovall, chief investment strategist at CFRA said he’s leery of the rush into stocks, as investor sentiment rises. “I’m more concerned with the mindset today of the fear of missing out, FOMO. All of the bull markets … they all go out with a bang. They don’t go out with a whimper,” said Stovall. He said stocks usually have a double-digit gain before the end of bull market. “We’re currently up 20 percent in from March 9 of 2015.