HOT AIR BALLOON FLIGHT

By Julia Horowitz • Thursday, September 30

Good morning. In today's newsletter: The IPO boom is going strong after another blockbuster quarter. Plus, investors love Dollar Tree's decision to sell more stuff for above $1, and the US government is worried about bacon inflation.

 

US stock futures are up after the Nasdaq Composite slid again on Wednesday. Markets in Europe were mixed in early trading, following stocks in Asia.

 

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MARKET FLASH

Wall Street revels in the biggest IPO boom in decades

 

A resilient stock market, fueled by central bank and government stimulus, is pushing a record number of companies to raise money by offering shares on public markets. That's been a huge boon for the Wall Street banks orchestrating the deals.

 

"I honestly thought last year would be the busiest in a couple of decades," Aloke Gupte, JPMorgan's co-head of equity capital markets for Europe, the Middle East and Africa, told me. "This year has topped that by a distance."

 

What's happening: In the third quarter, which wraps up Thursday, 94 US initial public offerings, or IPOs, raised $27 billion. That makes it the best July-to-September period by deal count since 2000, according to a report from investment bank Renaissance Capital.

 

Globally, 2,044 new listings have brought in roughly $468 billion year-to-date, per Dealogic data compiled for CNN Business. That's already surpassed a record-setting 2020, when 1,656 deals raised almost $358 billion.

 

The third quarter includes the typically slower summer period, when trading volume eases and bankers take vacations. Activity did taper off in August, but the overall calendar has been extremely full.

 

Healthcare and tech were the most active sectors, generating two-thirds of the quarter's US IPOs, Renaissance Capital said. It also noted an uptick in consumer companies going public, including drive-thru coffee chain Dutch Bros., Swiss shoe brand On and grill-maker Weber.

 

Remember: This was also the quarter that brought Robinhood to the Nasdaq. The trading app raised $2.1 billion — less than it expected, but still a hefty sum.

 

Gupte pointed to a number of factors driving the recent boom, including the economic recovery, which has lifted stocks, and strong valuations across sectors.

 

This helps, too: Companies tapping public markets have seen shares perform well in early trading, with many enjoying huge day-one pops — an important marker both for the firms making their debuts and the banks who help price shares.

 

Stock in eyeglass startup Warby Parker, which started trading on the New York Stock Exchange Wednesday following a direct listing (which is slightly different from an IPO) ended the day 36% above its $40 reference price.

 

Why it matters: Gupte said that the success of recent IPOs is encouraging companies to go public earlier in their lifetime — a meaningful shift from recent years, when many startups have opted to stay private longer.

 

And while he thinks next year could be rockier, with smaller windows of activity, he doesn't expect market volatility to derail the momentum, with a long list of deals in the pipeline.

 

"Every single time the market's fallen back, it's come back and [reached] a new high," Gupte said. "A very, very high class of companies are lining up to go public."

 

On the radar: The Financial Times reports that the recent deal frenzy in the United States and Europe hasn't extended to Hong Kong, which is set for its worst quarter for new listings since early 2020. The biggest factor is Beijing's crackdown on private business, which is making companies nervous about listing in the region.

VOICES

Questions surface about Fed chair's reappointment

"[Jerome] Powell remains the favorite, but his chances have clearly gone from a sure bet to a lower probability."

 

ED MILLS, RAYMOND JAMES WASHINGTON POLICY ANALYST

 

Read more from CNN Business.

CORPORATE MONITOR

Dollar Tree will sell more stuff for above $1. Investors love it

For decades, Dollar Tree has sold most of its products for a dollar. Now it's adding items with higher prices at thousands of stores.

 

The company has announced that it will begin selling items for $1.25 and $1.50 at some locations for the first time, my CNN Business colleague Nathaniel Meyersohn reports. It will also add $3 and $5 items to more stores, expanding on a recent strategy to move away from only offering goods for $1.

 

Investors were thrilled with the news. (No surprise there: The new approach to pricing will ostensibly encourage customers to spend more per trip.) Shares surged 16.5% on Wednesday.

 

Time machine: Dollar Tree has faced pressure from Wall Street in recent years to boost prices. In 2019, an activist investor took a stake in the company and pressed the chain to take action. The group ended its fight after Dollar Tree announced plans to test different pricing options.

 

Yet the move is also a response to worrisome trends. CEO Michael Witynski told the Wall Street Journal that the addition of items above $1 was in part a reaction to rising costs. In August, the company slashed its profit forecast for the year, citing the impact of higher shipping expenses.

 

"We recognize the need to make adjustments in the current economic environment," Witynski said. The company needs to factor in "the pressure all of us are seeing on wages, freight and on our suppliers and cost increases," he continued.

 

Watch this space: Hiking prices does carry the risk of turning off shoppers — especially for chains that target those on tighter budgets.

 

"Dollar Tree should benefit from changes in its pricing strategy, although we worry about the customer reaction, given their high sensitivity to prices," Telsey Advisory Group's Joseph Feldman said in a note Wednesday.

UP NEXT

CarMax, Bed Bath & Beyond and McCormick report results before US markets open.

Also today: Fed Chair Jerome Powell and Treasury Secretary Janet Yellen testify on the pandemic response before the House Financial Services Committee starting at 10 a.m. ET.

 

Congress is also racing to avert a government shutdown. Senate Majority Leader Chuck Schumer announced Wednesday night that Democrats had reached an agreement with Republicans on a stopgap bill to keep the government funded through early December.

 

Don't miss this: Today at 12 p.m. ET, CNN Business presents "Foreseeable Future: Cryptomania."

 

Join CNN anchor Julia Chatterley for a conversation with Galaxy Digital CEO Mike Novogratz, followed by a panel discussion with Guapcoin founder Tavonia Evans, SEC Commissioner Hester Peirce and Sydney Schaub, the chief legal officer at Gemini. To reserve a spot now, RSVP here.

WHAT WE'RE READING AND WATCHING

▸ GM's Mary Barra will lead the Business Roundtable (CNN Business)
▸ 'Squid Game' could be Netflix's biggest show ever (CNN Business)
▸ H&M's September sales were hit by supply delays (Reuters)

▸ The bond market sell-off is a warning to policymakers (FT)
▸ Supply chain workers talk of 'system collapse' (CNN Business)
▸ Paint is the latest product to faces shortages (CNN Business) 

FINAL WORD

Inflation is a nightmare. Especially when it hits bacon

Post-lockdown inflation is worrying policymakers around the world, who fear that prices could spiral out of control if supply chains remain clogged and workers start demanding higher pay.

 

One item that's on the US government's radar? Bacon. 

 

The price of the much-loved breakfast food is more expensive for Americans than it has been in 40 years, my CNN Business colleague Alicia Wallace reports. The average price for a slab of bacon has jumped nearly 28% during the past 12 months, according to government data.

 

Step back: The domestic pork supply chain was one of quickest to get knocked out of whack when Covid-19 hit. Facilities shut down, and the backlog of animals grew. Millions of pigs were euthanized without being processing into food.

 

Pork production is expected to close out the year 2% lower than 2020 levels, IHS Markit economist Adam Speck told Alicia. Demand, meanwhile, has been "exceptional." 

 

Experts don't expect these problems to be resolved soon. They're also worried about the reemergence of African Swine Fever, which cropped up in the Dominican Republic over the summer.

 

The Biden administration is taking action. Its team of economists has said prices are high because a handful of large companies control the majority of market share, and outlined plans to level the playing field earlier this month.

 

Will greater enforcement of antitrust laws, investigations into price fixing and support for new market entrants solve the problem? Hungry Americans, at least, should stay tuned.