THE stock market's value has been shooting up in recent months, encouraging United States companies to race to the market in record numbers with debt and equity underwritings. Many of them involve new stocks (initial public offerings, or IPOs). This year is expected to be good for both underwriting in general, and new stock issues in particular.
"I was talking to officials of a small utility company just yesterday," says Perrin Long Jr., a First of Michigan Corporation official. "They were planning to go to the debt market [in a public stock underwriting] to raise some new money.... They had talked about waiting until later in the year; now, they feel they've got to raise the money as quickly as possible" because of their concern that both long- and short-term interest rates have hit the bottom and may be on the way back up.
This year companies have been scrambling to line up underwriting, propelled in part by low interest rates and cheaper underwriting costs. In terms of total return, low interest rates also make equities more desirable than alternative instruments like bank certificates of deposit and money market accounts.
For the three months ending March 31, IPO volume reached $11.5 billion, compared with a volume of $11.1 billion for the same period in 1992, according to Securities Data Company in Newark, N.J.
When all domestic underwriting activity is added up, including bonds, sales of stock by companies already established in the various markets, as well as IPOs, a record $262 billion was raised in the first quarter of 1993. That compares with the previous record of $222 billion raised in the first three months of 1992.
"The second quarter [ending June 30] also looks promising, in terms of the overall amount of money going into domestic financing [underwriting], as well as new public offerings," says Adrian Easterbrook, a spokesman for Securities Data Company. The torrid pace of debt financing is "basically on line with what happened during the first quarter, although it could be slightly lower," he says. Mr. Easterbrook predicts that total domestic financing could be around the $190-million to $200- million level in th e second quarter.
Last year, more than $850 billion was raised in the total domestic underwriting market, up 44 percent from the $590 billion raised in 1991. IPO volume reached $39 billion, shattering the previous high of $27 billion set in 1986.
"A lot of cash is flowing into the stock market, and that leads to a demand for new stock issues," says Robert Natale, who covers new issues for Standard & Poor's Corporation. Last week, Allstate's new stock offering raised $2.1 billion, the largest IPO recorded for a US company.
"High levels of corporate underwritings and new IPOs traditionally accompany a rising bull market," says Hildegard Zagorski, a vice president with Prudential Securities Inc. The stock market showed some signs of retrenchment last week, but May was an especially robust month for equities.
The Nasdaq composite index led major indexes, jumping almost 6 percent in May; the Dow Jones industrial average rose almost 3 percent; and the Standard & Poor's 500 index rose 2.3 percent.
The Dow, meantime, continues to hover around its all-time high of 3,554.83 points, set on May 27.
"President Clinton is being forced to move back toward the political center," in terms of US economic policy, Ms. Zagorski says. The stock market is responding to that shift favorably, she adds.
In fact, Mr. Clinton's economic programs now may be far less important than initiatives taken by Federal Reserve Board Chairman Alan Greenspan, argues Mr. Long of First of Michigan.
"Forget the talk of a `Clinton market'. The big concern is a `Greenspan market,' " Long says. The Fed has sent signals that it would be prepared to nudge up interest rates if necessary to prevent a rise in inflation. What is unknown, Long adds, is how much higher the Fed would be willing to let rates go.
But even if interest rates edge up slightly, it should not be enough to significantly offset the current advantage of stocks over money market accounts and certificates of deposit, experts say. And that should bode well for additional corporate underwriting and IPOs in 1993.