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In One Chart: U.S. stock indexes tumble. So do volumes of new stock issuance

What’s new in the stock market in 2022?

Literally, not much beyond a sea of red. Initial public offerings have been sparse this year as the Federal Reserve looks to tighten financial conditions and cool inflation at 40-year highs.

Follow-on offerings, when public companies sell additional shares to raise funds, also have fallen off dramatically, following several monster years of new stock issuance.

Only about $40 billion of new U.S. stock has been issued so far this year (see chart), versus more than $1 trillion in the past two years combined, according to EPFR, Informa Financial Intelligence.

U.S. stock issuance is slowing to a trickle in 2022

EPFR, Informa Financial Intelligence.

Last year at this time, there was $227 billion of new stock issuance, up from $79.3 billion in the same stretch of 2020, according to EPFR analyst Winston Chua, who said sparse new stock issuance could be providing a bit of support for equities, despite broader market tumult.

The trickle of stock issuance comes as big U.S. companies also have been borrowing less in the bond market in 2022, in part as debt costs rise from pandemic lows.

See: IPO market outlook is ‘foggy’ heading into second quarter as falling returns at year-end and war in Europe dampens risk appetite

Stocks plunge Friday

“There are a lot of reasons why IPOs are down,” said Randy Frederick, managing director of trading and derivatives at Schwab Center for Financial Research, pointing to global instability tied to Russia’s war in Ukraine, high inflation and rising interest rates as factors.

“There’s also been a fair amount of talk of recession,” Frederick said, despite the robust labor market. There’s also been a painful rout in technology stocks, a key source of mega-IPOs in the past few years, and poor performance of “blank-check companies,” or special purpose acquisition companies, which were hot in recent years of peak pandemic stimulus.

“SPACs were huge this past year, but most of them haven’t done well,” Frederick said. “With all of those factors, it’s been death by a thousand paper cuts for the IPO market.”

Stocks tumbled Friday for a second straight day, on rate hike worries and as a fresh batch of corporate earnings largely disappointed. The Dow Jones Industrial Average

lost 2.8%, its worst daily percentage drop since October 2020. S&P 500

fell 2.8% and Nasdaq Composite Index

dropped 2.6%, according to FactSet.

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