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The IPO market is finally starting to get going, and next week will be the biggest week of the year. Roughly 14 companies are slated to go public and will likely raise north of $2 billion.
It's been a lackluster start. There's been 82 IPOs this year, about 40 percent below where we were last year.
Why is the market finally heating up? The single most important factor is positive returns for investors. With the overall market relatively healthy, IPOs have also done well. The Renaissance Capital IPO ETF, a basket of roughly 60 recent IPOs, is approaching its April historic high.
For others, there may be a simple calculation that now is the time to take the company public, before the Fed begins raising rates later this year.
The upshot: June could be one of the biggest months for IPOs in years. Perhaps as many as 34 will price, the most in a single month since 1999.
"It's like somebody pressed the IPO reset button," Kathleen Smith from Renaissance Capital said.
What's impressive about next week's crop of IPOs is the breadth of the offerings. There's something for everyone.
Why aren't the markets worried about Greece?
I have said for some time that the consequences of Greece leaving the euro zone may be far greater than anyone realizes, but the market thinks otherwise.
The German stock market is rallying today, and is flat on the week. European markets are down only about 1 percent for the week. European bond yields are up, but not too dramatically. The S&P 500 is up 1.3 percent this week, and the CBOE Volatility Index is near the lowest levels of the year.
I've had many discussions with analysts and traders about this seeming indifference. Opinions vary, but there are four factors that show up in everyone's list to explain the phenomenon:
1) Fatigue: After five years of crisis, everyone is over it.
2) Complacency: Most feel that a deal will be made, even if it is just a "kick the can" deal.
3) No contagion: Traders believe the European Central Bank when it said it would do "whatever it takes" to keep the euro together.
4) Containability: Finally, even if Greece leaves the euro, many have now convinced themselves the damage could be contained. Peripheral bond yields are only modestly elevated, with Spanish 10-year yields, for example, is at 2.24 percent.
Stocks rallied and Treasury yields declined as Janet Yellen maintained a dovish outlook in her press conference, emphasizing that even if the Fed raises rates it will be "gradual."
The Fed statement was almost a carbon copy of the April 29 statement. The only change came in the first paragraph on the economic outlook.
The Fed has:
1) modestly upgraded the economic outlook: "has been been expanding moderately after having changed little during the first quarter."
2) modestly upgraded the assessment of the labor market: "The pace of job gains picked up while the unemployment rate remained steady."
3) upgraded its view on housing: "Growth in household spending has been moderate and the housing sector has shown some improvement"
4) left in the key inflation line: "The Committee continues to monitor inflation developments closely."
5) left in the key statement on fed funds rate: "economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."
6) downgraded their 2015 GDP forecast to 1.8-2 percent from 2.3-2.7 percent in March.
What happened to the recovery in oil stocks?
The pricing and volume action are telling me that investors are doubting the hoped-for 2016 recovery in production volumes.
Yesterday, Chevron hit a three-year intraday low.
The main Energy ETF, a basket of the energy stocks in the S&P 500, has staged three separate attempts to rally since hitting lows in December and January and is again fading, essentially moving straight down for the past six weeks. Volumes have also faded.
And the rally in crude has stalled. Since bottoming in the low $40s in early March, West Texas Intermediate, the main U.S. benchmark, has staged an impressive rally (over 40 percent) to trade between $58 and $61, but has been stuck in that range for the past six weeks as well.
Here's the problem: Everyone bought energy stocks aggressively in early 2015 on the theory that oil production would bounce back in 2016.
It's human nature. The optimists are focusing on a bounce.
But many are starting to realize that, while oil prices may stage a modest comeback, oil production may not, at least any time soon.
The trading day begins again and will end later today, but Greece goes on forever.
How fed up is the trading community with Greece? I attended a hedge fund "idea dinner" last night, where roughly 15 investment professionals exchanged trading ideas, both long and short.
When it came to the subject of Greece, most just shrugged. A surprising number thought it would be good in the long run if Greece defaulted and left the euro zone.
But most didn't want to talk about it.
That about summarizes the trading community attitude: so fed up they don't want to talk about it anymore. So fed up they seem to have run out of things to say about it.
"Volumes are terrible and traders are fed up w/ Greece," one hedge fund friend messaged me. "If they get kicked out...maybe that's a negative event, but who knows?"
Here's how confused things are on Greece: Traders aren't even sure what resolution would be best for the markets.
"The market isn't trading worse because there is a firm belief that whenever there is an event driven by a policy decision that decision will go the way the market wants, even if the market doesn't know what it wants...like Greece," one trader told me.
Standard Pacific will undertake a 1-for-5 reverse stock split. After the split, Ryland shareholders will receive 1.0191 shares of Standard Pacific stock for each Ryland share.
Though billed as a "merger of equals," Ryland will hold a 41-percent stake while Standard Pacific will have a 59-percent stake.
Mergers of home builders are fairly rare events. The last real merger of size in this space was between PulteGroup and Centex in 2009, though in 2013 Tri Pointe Homes acquired the land assets of Weyerhaeuser.
Why are mergers fairly rare in the home building space? Builders don't like to buy each other because what they really want is the land. That's what is scarce. So why pay a premium for operations when all they want is land? Just buy the land.
Still, in some circumstances, the deal would make sense when you need scale fast. You get the purchasing power of a bigger guy. More negotiating power with subcontractors.
It would also make sense if you thought the home building market was in for a period of slow growth.
The love affair with restaurants continues.
Fast casual chicken restaurant Wingstop priced 5.8 million shares at $19 in its initial public offering (IPO), a significant rise over the initial price talk of $12 to $14, which was then raised to $16 to $18. It's only the latest in a long string of IPO successes for restaurants, mostly in the fast casual space.
Since 2014, restaurant IPOs have been on a tear (source: IPO ETF Manager Renaissance Capital):
One important point: Much of the gains noted above occurred on the first day of trading, so the initial "pop" is very important.
The CEO of Bojangles, Clifton Rutledge, will be on CNBC's "Closing Bell" today.
Next week will be a big one for the IPO market, with yet another restaurant IPO and the long-awaited debut of Fitbit.
IPOs coming next week include:
Biggest biotech IPO ever. Biotech firm Axovant priced 21 million shares at $15 on the NYSE, the high end of the price talk of $13-$15. That's $315 million, which makes it the largest biotech IPO ever based on the amount raised, according to Renaissance Capital.
But that's only part of the story. Those 21 million shares are only a fraction of the 100 million shares the company has. So the market capitalization of the company at the open was $1.5 billion ($100 million x $15 a share).
The stock closed at $29.90, up almost 100 percent. So we are now dealing with a market capitalization approaching $3 billion.
Here's what's remarkable: The company has only one product, a dementia drug for treating Alzheimer's.
This drug is entering Phase 3 trials.
The CEO, Vivek Ramaswamy, bought this drug from Glaxo for $5 million (Glaxo will get contingent payments if the drug gets approved).
This is rather remarkable. Ramaswamy buys a drug Glaxo passes on for $5 million, turns around and raised $315 million in an IPO, and now has a company that is worth almost $3 billion.
Does this amaze you? It amazes me. Either 1) Ramaswamy has made one of the great investments of all time and Glaxo has made a serious error passing on the drug, or 2) the company is overvalued. Very.
Part of this, of course, is due to the nature of the investment: 1) biotech is a hot space, and 2) there is a serious paucity of effective treatment modalities for Alzheimer's.
It raises another question: Is biotech developing into a bubble?
Let's try to narrow the definition. How about looking for really big first-day pops in biotech IPOs. That's a sign of investment mania.
This was one of the tells in the dot.com implosion. In 1999-2000, average first-day pops were roughly 50 percent to 70 percent, according to Renaissance. So investors didn't do much research; they just went in on every deal because everyone believed in that immediate pop.
Are we seeing this in biotech? Over the last year, there have been 61 biotech IPOs; the first-day pop for the larger deals (over $100 million) has been 38 percent. That's a lot given how conservative the IPO market has been.
Here are a few first-day pops for biotechs in the last year:
Aduro Biotech up 147 percent
Sparks Therapeutics up 117 percent
Axovant up 99 percent
Avalanche Biotech up 64 percent
Tokai Pharmaceuticals up 58 percent
So, are we in a biotech bubble? There are a few that have had big pops, but most are larger companies. If you compare the entire universe of biotech IPOs (all 61), the average first-day pop has been only 10.2 percent. That's about in line with the average first-day pop of the entire IPO universe: 12.5 percent.
Bottom line: There are a few signs of a bubble on the larger biotechs. Why? One possible reason is that investors have a hard time judging the science, and many are likely using size as a factor. Stay tuned.
May retail sales rose 1.2 percent, roughly in line with expectations. Auto sales were especially strong, up 2 percent. But the rebound was bigger than that.
May retail sales
It looks like the consumer is a bit stronger, certainly stronger than in April.
"Core" retail sales (excluding autos, gas, building materials and food services) were up 0.7 percent, better than an expected increase of 0.5 percent. The prior month was revised upward as well, to 0.1 percent.
This suggests second quarter GDP numbers will be revised upward.
While this is good news, retail sales year-over-year are up only 2.7 percent. That's a respectable but not great improvement.
Greece and China bear watching but will have limited on the U.S. economy or markets, strategist Tom Lee says.
No matter which way the Greek vote goes, the European Central Bank on Monday will face a series of agonizing decisions.
Greek banks are preparing contingency plans for a possible "bail-in" of depositors, sources said. The FT reports.