Record equity issuance shouldn't be a headwind for equity markets

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After a long quiet spell, US equity issuance is picking up sharply. Initial public offering (IPO) issuance is on track to reach USD 200-350bn this year, with secondary offerings potentially exceeding USD 400bn, according to our estimates. In absolute dollar terms, both estimates would represent record highs.

But we do not think the scale of issuance will prove a material headwind for US equity markets, for several reasons:

Heavier issuance would represent a return to normal. The absolute dollar value of issuance may reach a new high, but the overall market has also grown significantly. When measured relative to the total US equity market capitalization of around USD 72tr, estimated issuance for this year is only slightly above the long-term average as a percentage of the Russell 3000 free float market cap. From this perspective, we believe equity markets should be able to accommodate the increase in issuance.

Sustained buybacks mean net equity supply could still shrink. Net equity supply remains important, and here the picture is more supportive than the gross issuance headlines imply. US share buybacks totaled USD 1.2tr over the past 12 months, and we expect repurchases to remain around that level through the balance of the year. So, in aggregate, the corporate sector will likely buy back slightly more stock than it issues this year. This increases our confidence that equity issuance shouldn’t be a material headwind to further equity market gains.

No surprise: when markets are up, so is issuance. Academic literature and our own analysis suggest that there is no consistent relationship between changes in IPO activity and forward market returns. Even the five largest US-domiciled IPOs since 1990 showed no discernible effect on broader US equity performance in the surrounding weeks. The stronger historical relationship is that IPO activity is a coincident indicator—issuance tends to rise when markets are strong and fall when conditions materially weaken. This makes sense: When markets are up, investors are more willing to invest in new issues and companies usually get higher valuations for their shares.

So, without taking any single-company views, we think the recovery in issuance is more a sign of healthier market conditions than a reason for caution. We prefer focusing less on headline deal volumes and more on fundamentals, especially the outlook for corporate profits, which remains the most important driver of equity returns over time. That said, portfolio construction matters as much as market direction: Investors should review concentration risk, strengthen diversification across sectors, styles, and regions, and avoid letting a small number of holdings dominate outcomes.

Within AI, we continue to focus on beneficiaries of the buildout, with “picks and shovels” exposure to areas such as semiconductors, hardware, memory, foundries, optics, and electrical equipment. Stepping back, AI remains one of the three pillars of our transformational innovation approach. We continue to recommend diversified exposure across these TRIO themes, which also include Longevity and Power and resources. Longevity, in particular, has shown diversification benefits for portfolios with significant exposure to growth-sensitive technology companies.

Read more in our publication, “A closer look at equity issuance,” published on 17 June.