Mad Money

Market vulnerable to awful sickness, says Cramer

The IPO plague
The IPO plague

(Click for video linked to a searchable transcript of this Mad Money segment)

It's not flu season, yet Jim Cramer is concerned about sickness sweeping across Wall Street.

" have become a sickness, and we need to monitor the disease to figure out when it will run its course," said the "Mad Money" host.

If the latest facts and figures are to be believed, someone should be rushing markets to a hospital, stat.

Alan Thornton | Stone | Getty Images

"When you look at all the IPOs from the first quarter, and all of the IPOs in the pipeline for the not too distant future, it's clear that the disease is far from finished," Cramer said.

For example, according to Renaissance Capital, in the first quarter of this year, 64 companies came public, raising a total of $10.6 billion.

"Now, 2013 was already the biggest year for IPOs in over a decade, but in just the first quarter of 2014 we've seen more than twice as many deals as we had during the first quarter of last year. "

That's a problem. It suggests supply is too great. And the problem gets worse.

"When you go through these 64 new issues one by one, you see that we really have been flooded with biotech IPOs," Cramer added. "Historically we've averaged about 12 biotech IPOs per year; we just had more than double that figure in one quarter."

That suggests there's irrational exuberance in the biotech sector.

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And Cramer said the volume of IPOs in other areas of the market, particularly tech, show similar signs of irrational exuberance.

In turn, Cramer fears these newly public stocks cannot sustain their valuations. Price action in the following recently IPOd companies seems to confirm Cramer's outlook:

" vaulted from $16 to $30 on its first day of trading, but since then it's fallen back down to $20 and change. Castlight Health soared from $16 to nearly $40 on day one, now it's down to $16 and change, barely above where it came public. Paylocity shot up from $17 to $24, now it's at $19."

All told, Cramer thinks the market could be facing a serious malady.

"If this flood of IPOs doesn't stop soon, the market could drown under the weight of all the excess supply," Cramer said. "Last quarter the IPO market was so hot I'd call it feverish. All I can hope is that the fever breaks before we lose the patient."

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