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EDITOR
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Facebook IPO: Bullish or Bearish For Stocks?
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Senior Editor, CNBC
Will the Facebook initial public offering be bullish or bearish for the stock market? Conventional wisdom is that big, headline grabbing IPOs are generally bullish for the overall stock market. But, conventional wisdom is often wrong — at least in the short term.
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Bespoke Investment Group ran the numbers and found that since 2000, when IPOs greater than $2.5 billion hit the market the S&P went down in the week before, the week after and also the month after the IPO.
These returns were also below the average S&P 500 returns over all one week and one month periods since 2000.
See chart at the end of this post for complete breakdown of the numbers.
And the numbers seem to be true for the performance within a sector, too. Bespoke looked back at two sectors and analyzed the performance of food stocks following the Kraft [KFT
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] IPO and insurance stocks following the Travelers [TRV
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] IPO. In both cases, the group dipped following the IPO suggesting that the market had to digest the new supply of equity.
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In the case of Facebook, the initial reaction to the Facebook IPO chatter was a rally for social media stocks. But, a few days later the sector is decidedly mixed. Stocks such as Zynga [ZNGA
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] and GroupOn [GRPN
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] are higher while Pandora [P
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] and LinkedIn [LNKD
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] are basically flat.
The reason for the slump may simply that investors need to find dollars to buy the new offering by selling off existing holdings says Paul Hickey, Bespoke Investment Group Co-Founder.
“If the investment pool isn’t growing the money has to come from somewhere, negatively impacting the market,” he says. But, with reportedly billion dollars of cash on the sidelines, could it be different this time?
Hickey doesn’t think so. Despite ready cash he says, historic patterns will repeat especially as it is unlikely that Facebook’s valuation would allow for a big market pop in any direction.
S&P 500 Performance Before & After Large IPOs |
| Date | Company | Size USD (bln) | Week Before | Week After | Month After |
| 3/18/2008 | Visa | 19.7 | 0.76 | 5.98 | 4.53 |
| 11/17/2010 | General Motors | 18.1 | -3.29 | 1.68 | 4.83 |
| 4/26/2000 | Cingular (AT&T) Wireless | 10.6 | 1.34 | -3.14 | -4.24 |
| 6/12/2001 | Kraft Foods | 8.7 | -2.16 | -3.45 | -5.81 |
| 5/3/2006 | KKR | 5.0 | 0.19 | 1.15 | -3.28 |
| 7/1/2002 | CIT Group | 4.9 | -2.42 | -1.30 | -9.18 |
| 6/21/2007 | Blackstone | 4.8 | -0.05 | -1.08 | 2.66 |
| 3/9/2011 | HCA Holdings | 4.4 | 0.89 | -4.78 | 1.18 |
| 3/21/2002 | Travelers Property Casualty | 4.3 | 0.05 | -0.54 | -2.38 |
| 3/27/2001 | Agere Systems | 4.1 | 3.46 | -6.40 | 4.92 |
| 12/12/2001 | Prudential Financial | 3.5 | -2.84 | 1.10 | 1.33 |
| 7/18/2007 | MF Global | 2.9 | 1.80 | -1.82 | -9.02 |
| 4/4/2000 | MetLife | 2.9 | -0.86 | 0.39 | -3.96 |
| 5/24/2004 | Genworth Financial | 2.9 | 1.04 | 2.48 | 3.77 |
| 5/24/2006 | Mastercard | 2.6 | -0.92 | 1.08 | -0.35 |
| 3/20/2002 | Alcon | 2.5 | -0.19 | -0.63 | -3.78 |
| Average | -0.20 | -0.58 | -1.17 | ||
| % of Time Positive | 50.0 | 43.8 | 43.8 | ||
| Average - All Periods Since 2000 | 0.03 | .08 | |||
| % of Time Positive | 53.2 | 57.2 |
Note: (IPOS >$2.5 Billion): 2000 - 2012 || Source: Bespoke Investment Group |
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