Wall Street is praying firms will start going public again

For two long years, private companies have spurned public markets as rising interest rates dashed lofty valuations

Can you feel the chill? It is bone-deep, now. In 2021 capital markets were searing hot. On average, at least one new firm went public every working day. But financial districts today are icy. For two long years private companies have spurned public markets, as rising interest rates dashed lofty valuations and stock prices vacillated.

All this has been bad news for Wall Street. In 2021 America's five largest investment banks together earned an average of $13bn per quarter through their dealmaking and initial-public offering (IPO) desks. Over the next two years they managed barely half of that.

Could conditions soon thaw? Company bosses like to make their debut in a roaring bull market, when investors are cheery and liable to overpay.

With markets now back near all time highs, that seems to be the case. And executives are encouraged by narrow credit spreads-the difference between the rates companies borrow at and risk-free rates on treasury bonds which indicate investors do not expect financial trouble.

A strong economy helps, too, because it boosts demand for capital. So do high real interest rates, since they make the capital provided by an IPO more attractive. Given the resilience of the American economy, a Federal Reserve policy rate of 5.5% and underlying inflation around 3%, both conditions are in place.