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Fund Managers Selling Stock to Raise Cash for IPO Season

By:
James Hyerczyk
Published: Mar 28, 2019, 04:38 UTC

Don’t be surprised if technology shares weaken over the near-term especially on days the benchmark and blue chip indexes rise. This may be caused by fund managers trimming positions of winning stocks to raise the cash needed to invest in some of the high-flying IPOs.

U.S. Stock Market -IPOs - Lyft

The plunge in Treasury yields and the fear of a recession are not the only factors weighing on U.S. equity markets. According to CNBC’s Jim Cramer, some of the weakness in the stock market maybe being fueled by investors selling positions in high-growth technology stocks to raise cash to buy into the slew of initial public offerings.

This year’s slate of IPOs include ride-hailing apps Uber and Lyft, hospitality platform Airbnb, data intelligence company Palantir, and work space operator WeWork. All are popular mainstream companies so they should garner much attention from investors.

Cramer cited Lyft as one potential popular IPO. He said that he has noted weakness in the Nasdaq as big institutions reconsider their stock allocations.

“You need to be prepared for many more not-so-hot days like today. In the end, the stock market is like any other market – it’s controlled by supply and demand,” Cramer said. “With all of these big IPOs coming…these deals will push the rest of the market down until the tide goes out with a whimper, not a bang.”

The move by the investment funds is not new. Years ago when investors were preparing for Facebook’s IPO, shares of Apple started to trend lower. At that time, it was said that investors were paring positions in Apple to raise cash to invest in Facebook.

Recent price action in the U.S. equity markets suggest the 10-year bull market may be getting tired. Investors who are feeling the same pinch in their portfolios, may be seeking to inject “new blood” into their collection of stocks in the form of IPO’s, which tend to produce impressive profits if one can get in early enough.

Lyft IPO Attracting Attention

Recent estimates in the value of shares of Lyft suggest rapidly increasing interest from fund managers. The transportation platform is set to offer more than 30 million shares in the boosted range of $70 and $72 a share, up from $62 to $68, according to Cramer.

“And you know what, it might not be done being lifted. I’ve seen [IPOs] go up another level and even expand the size of a deal. With that revised range tonight, they’re planning to raise approximately $2.2 billion and that’s before you count the underwriter’s percentage of the greenshoe, which could add another $300 million or so to these companies’ IPO overhaul.”

Furthermore, “Because the Lyft deal will make these money managers so much more money, they’re desperate to raise cash for it and they don’t care how low they sell those stocks,” Cramer said. “So the selling will be indiscriminate and vicious as it was this very morning. Price becomes irrelevant when you’re trying to raise money for a red hot deal.”

Not All Weakness Being Fueled by Fundamentals and Inverted Yield Curve

Don’t be surprised if technology shares weaken over the near-term especially on days the benchmark and blue chip indexes rise. This may be caused by fund managers trimming positions in winning stocks to raise the cash needed to invest in some of the high-flying IPOs.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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