Three highly anticipated initial public offerings that came to market this past week raised investor hopes that a nearly two-year-long drought in IPOs might finally be coming to an end. But the underperformance of all three stocks — which by Thursday were all trading within a couple of percentages on either side of their offering prices — could be a sign that market sentiment isn't ready to embrace a lot more risk just yet. "You don't have a lot of evidence that the market's risk appetite is conducive to IPOs at this stage," said Adam Sarhan, CEO of 50 Park Investments. "This is a good first step, but the fact that there's no real follow through in any of these IPOs yet shows us that sentiment, and risk appetite, isn't there yet." The amount of capital raised in IPOs collapsed 95% last year to just $7.7 billion — down from more than $142 billion in 2021 — as the Federal Reverse raised interest rates in the most aggressive move in 40 years to quash rapid inflation. ARM mountain 2023-09-14 Arm's performance since its IPO This month, Arm Holdings Plc was the first of the three new IPOs to come to market, at an offering price of $51 per share. After trading as high as $69, by Thursday, it was about 1% under water. Instacart priced at $30 a share, climbed to almost $43, but recently was little changed from the offering price. Klaviyo priced at $30, nearly got as high as $37 and is doing the best of the three, trading almost 5% above the original offer price. In fact, the Renaissance IPO ETF that tracks aftermarket trading in recent IPOs picked up heading into Arm's offering but fell 2.5% Thursday and is down nearly 5% this month. British semiconductor designer Arm and marketing technology provider Klaviyo lost 4.4% and 2.6%, respectively, on Thursday, while grocery delivery service Instacart was up about 0.5%. Market barometer IPOs are a barometer of market confidence as investors bet on the hope that they are snatching up companies with strong growth potential, said Truist Advisory Services' chief market strategist Keith Lerner. One thing weighing on sentiment is the recent surge in interest rates, which pushed two-year Treasury yields as high as 5.20% Thursday, up from about 4% a year ago. That poses a major threat to valuations by lowering the present value of promised future earnings and lessens the growth potential for newer companies that can be more volatile than more established companies, he said. CART mountain 2023-09-19 Instacart shares since market debut "You're in an environment where a lot of investors are looking for more stability," Lerner said. "When you have risk-on, people are willing to go ahead on these companies that have higher risk-return profiles, but in the short term, the market just has a bit of a lack of confidence based on all the crosscurrents." The underwhelming performance of recent IPOs is just another sign the choppy market waters are likely to continue, he added. Recent underwhelming performance may simply signal that the market still needs time to heal from the damage done to growth stocks in 2022, when the S & P 500 Information Technology Index slumped 28% in its worst year in 2008. From that perspective, the recent IPOs aren't necessarily a sign of market failure, according to Sarhan. Historically, data suggests that many of these IPOs tend to trade sideways for several weeks after their debut before picking a direction, he noted. Buying a stock when it first goes public doesn't often pay off as a winning trade, he added. In fact, even technology behemoth Meta Platforms , formerly known as Facebook, took about a year to take off post-IPO, Sarhan noted. "The market is going to be the ultimate arbiter," Sarhan said. "It's going to determine whether or not this is a good environment for us or not."