Did Powell Just Stamp Out Bankers’ Green Shoots?

Investment bankers were finally starting to believe in the green shoots of capital-markets activity this month, but the Federal Reserve might now have crushed them under hawkish boots.

After a dire 18 months or so for deals and financing activity, September has brought a promising burst, particularly for new stock market listings and leveraged loan sales, both of which require decent appetite among investors to buy into riskier assets.

Trouble is, investor attitudes could be knocked by the message delivered by the Fed along with its decision to hold interest rates steady at Wednesday’s meeting. Chairman Jerome Powell wants to convince the market that more rises could still come, while a majority of board members favor another hike before the year-end. This could stoke uncertainty in the minds of investors and company executives, which will make them more likely to hit pause on new deals or big strategic decisions.

US stocks wobbled after the Fed meeting, with the S&P 500 ending down on the day. But worse, the big initial public offerings that hit the market in the past 10 days are dropping back to earth despite big opening day rallies. UK chipmaker Arm Holdings Plc jumped 25% in its debut last week but fell below its listing price on Thursday. Instacart (listed as Maplebear Inc.) rose more than 12% in its debut Tuesday, but has given up most of those gains. A third new listing, marketing technology Klaviyo Inc., was up more than 9% on its debut Wednesday but also slipped on Thursday. Further weakness in these stocks could discourage companies preparing listings, such as German sandal maker Birkenstock.

September's US Stock Listings Have Had Stuttering Debuts

Another key market to watch is leveraged loans, the junk-rated debt typically used to fund private equity deals. It has been boosted by a big pick-up in investor demand and a strong rally in the secondary market since summer after a long moribund spell. Little more than a year ago, banks were taking hefty losses on loans they couldn’t sell. But a wave of successful transactions will encourage dealmakers to press ahead with merger and acquisition plans.

Risky Loan Prices Have Rallied Since Summer