Stock markets are showing optimism with Donald Trump’s return, seemingly overlooking the possible tariffs he has often suggested imposing on America’s largest trading partners.

IPO bankers, who are gearing up for what many expect to be a remarkable year for public offerings, have one straightforward request for the president-elect: Can he avoid interfering with the market?

Read: Three potential futures for the global economy if Trump implements new trade tariffs

Despite a year that has recorded over 60% growth in volume compared to 2023, US initial public offerings are still recovering from a series of interest rate hikes that limited pandemic-era stimulus and caused a stock market correction.

The precise timing for a return to pre-pandemic conditions is still unclear, but there’s a focus on 2025—assuming the new administration’s policies do not hinder the momentum.

“The predominant risk is the onset of unnecessary volatility across the market,” noted Clay Hale, co-head of equity capital markets at Wells Fargo & Co.

“In a fluctuating market, investors tend to focus on their own portfolios and may be reluctant to back new companies from private markets.”

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Taking a company public is frequently compared to maneuvering an aircraft carrier: it’s a lengthy process that demands proper documentation, investor interaction, and balance sheet preparations.

During a prolonged period of relative stability, dealmakers have utilized the opportunity to prepare for high-profile listings such as CoreWeave, Medline Industries Inc., and Genesys Cloud Services Inc., with these listings potentially raising billions of dollars.

A wave of major deals next year might exceed the $43 billion raised through initial share offerings this year on US exchanges, according to Bloomberg data.

Even as markets approach historic highs amid positive forecasts for economic growth, “some uncertainty persists,” comments Kevin Foley, global head of capital markets at JPMorgan Chase & Co.

“While there is optimism that the new administration will encourage deregulation and lower inflation, the introduction of tariffs traditionally raises inflation,” Foley mentioned in an interview.

Challenges for private equity

The resurgence of rapidly escalating costs could prompt the Federal Reserve to reassess its interest rate policies.

This potential development could worsen the challenges facing private equity firms, which are currently holding down nearly $3 trillion worth of companies awaiting public offerings or sales, along with rising debt servicing costs.

“Much of the forthcoming activity will likely stem from the private equity sector,” noted Arnaud Blanchard, global co-head of equity capital markets at Morgan Stanley, who expects a series of transactions backed by buyout firms.

“However, the climate is not reminiscent of 2020, and the market will still favor high-quality assets, where raised amounts and implied market caps are considerably significant.”

Projected deal activity in 2025 is expected to more than double the figures seen during the lowest points of the post-pandemic decline, assuming the largest anticipated deals materialize, as demonstrated by Bloomberg’s analysis. Nevertheless, this doesn’t provide an easy path for companies grappling with balance sheet difficulties.

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“Certain PE-backed deals will focus on premium assets showing growth and scalability, while others must confront leverage challenges, ensuring they reach valuations that attract buyers,” explained Jimmy Williams, head of West Coast technology ECM at Jefferies Financial Group Inc.

“For the latter, tension arises between what investors are willing to pay versus what sponsors might accept for companies they’ve held onto for extended durations.”

The current environment for US IPOs demonstrates a notable lack of technology-related debuts since 2021. This sector typically drives the majority of deal activity, yet it accounted for less than 20% of this year’s revenues on US exchanges, according to Bloomberg data.

This trend is finally set to change with the gradual emergence of successful companies.

Firms like Reddit Inc. and Astera Labs Inc. have emerged as remarkable debuts this year. Recently, ServiceTitan Inc. set its IPO price well above an already elevated range, and its share price surged by 42% during its first trading day.

Read: Arm, Reddit, and Astera performances illustrate strength in AI IPOs

Several companies eyeing IPOs in the first half of 2026 are now targeting the latter half of 2025, inspired by the strong trading of stocks like ServiceTitan and OneStream Inc., according to Paul Abrahimzadeh, Citigroup Inc.’s co-head of ECM for North America.

“You can feel a buildup within the venture community,” Abrahimzadeh explained. “Engaging with VCs on the boards of private companies, there’s no inclination to delay; they want to demonstrate to LPs that they’re returning capital and achieving gains.”

Valuation adjustments

It’s beneficial that investors are showing flexibility on valuations in light of pre-pandemic expectations.

“We’re starting to see a willingness among companies to agree to down rounds during IPOs,” said Keith Canton, JPMorgan’s head of Americas ECM. “These down rounds aren’t impacting how IPOs are trading, encouraging sponsors and management teams to prioritize kickstarting the process.”

“We expect to enter 2025 with a highly active US IPO market—significant sponsor monetizations, more consumer and tech assets, and a fintech pipeline that has not been as developed in many years,” stated Daniel Burton-Morgan, head of Americas ECM syndicate at Bank of America Corp.

Swedish digital payment company Klarna Group Plc is leading the charge, having filed confidentially for a US listing in November.

Moreover, fee-free fintech service Chime Financial Inc. is also gearing up for a 2025 launch, as reported by Bloomberg News here.

The increasing possibility of deregulation regarding crypto assets has reignited interest in potential launches in this area, including Circle Internet Financial Ltd. and trading platform eToro.

Read: Crypto volatility spikes as Trump-driven rally begins to fade

Not everyone lamented the technology sector’s brief retreat from the spotlight.

“We have observed genuine diversity in the sectors propelling the IPO market this year,” stated Morgan Stanley global co-head of ECM Eddie Molloy.

Bright prospects for 2024

With the market predicting rate cuts, and Trump indicating he won’t replace Fed Chair Jay Powell, many expect a prosperous year ahead.

“With macroeconomic stability, the elections now behind us, and an environment seemingly conducive for capital market growth,” remarked Elizabeth Reed, global head of equity syndicate at Goldman Sachs Group Inc.

“These are the indicators we collectively monitor and feel optimistic about a rise in activity as we approach 2025.

The lower interest rate environment, coupled with a Trump administration viewed as favorable for mergers and acquisitions, might encourage companies and private equity firms to pursue aggressive acquisition strategies. This could lead potential public companies to contemplate quick sales as an alternative, according to Jill Ford, co-head of ECM at Wells Fargo.

“While the IPO market is showing signs of recovery and revitalization, it hasn’t fully taken off yet. Therefore, it’s vital to approach every process with a dual strategy, as there’s a legitimate possibility that these firms might prefer an M&A route,” Ford stated during an interview.

“This is particularly true given a loosening regulatory framework and robust balance sheets paired with a strong currency.”

Read: Wall Street puzzled by the Fed’s motivation to adjust key tools

It remains difficult to predict which of Trump’s campaign policies will be implemented during his administration, but with numerous financiers poised to serve in his government, many believe he will not overlook Wall Street’s interests.

“It appears that we’re all in a position of ‘it’s too early to tell’ how much of the campaign narrative will be realized,” remarked Tom Swerling, global head of ECM at Barclays Plc. “The market seems to be choosing to interpret the potential benefits of a Trump presidency positively.”

© 2024 Bloomberg

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