Periods of low, steady interest rates have historically coincided with booming IPO activity. With borrowing costs minimal and stock markets climbing, more companies rush to go public.
Take 2013 and 2014 for example. Those years saw the busiest U.S. IPO markets since the dot-com era, fueled by near-zero interest rates and a rising stock market.
In 2013, 222 U.S. companies went public (raising ~$55 billion) with 275 IPOs raising $85.3 billion in 2014.
A similar phenomenon played out in 2021: over 397 IPOs (almost 400) hit U.S. markets, raising an all-time high of about $142 billion – the most active year since 2000.
Clearly, when interest rates are low and stable, the IPO “window” tends to stay wide open, supported by strong equity markets and investor willingness to fund new ventures.
Now…
Low-rate environments not only bring more IPOs, but often robust initial returns. Ample liquidity and optimism create intense first-day demand for new stocks.
In fact, the average first-day “pop” in 2021 was around +31% – far above the ~18% historical norm. IPOs in 2013 averaged a 41% return by year-end.
In stable low-rate bull markets like 2013-2014, many IPO stocks did continue climbing for a while (2014 IPOs averaged +21% by year-end, outperforming the S&P 500’s 11% gains.
But if sentiment shifts or valuations overshoot, pullbacks can come fast.
A perfect example is late 2021: after huge first-day run-ups, the average 2021 U.S. IPO was actually down about –10% by the end of the year.
In other words, initial pops were “obliterated in the aftermarket” once investors grew wary of inflation and possible rate hikes, erasing gains.
Sector Trends: Growth Sectors Lead, But Broad Participation
All sectors participate in IPO booms, but low-rate climates especially favor growth-oriented industries. Technology and healthcare (biotech) IPOs tend to dominate during these periods, as investors are willing to bet on future growth when capital is cheap.
In 2013’s resurgence, tech and biotech produced many of the top-performing IPOs, alongside strong consumer-sector debuts
The trend continued in 2021: healthcare and tech listings were plentiful (the “typical” leaders), and even consumer and retail names saw a pickup in IPO activity amid the optimism.
Notably, 2021’s IPO wave was broad-based – excluding SPACs, tech and consumer discretionary companies were the most active industries tapping the market.
Investor Sentiment and Valuations in Low-Rate Environments
When interest rates are low and steady, investor sentiment tilts strongly “risk-on.” With bond yields near zero, investors hungry for returns pour money into stocks and especially IPOs.
A leading IPO research firm noted that companies in 2021 “took advantage of ripe IPO conditions – high valuations, low interest rates and strong investor appetite for equity.”
In practical terms, low borrowing costs and abundant liquidity allow investors (retail and institutional alike) to bid up newly listed companies to lofty valuations.
Practical Takeaways for Retail Investors
For retail investors evaluating IPO opportunities in today’s relatively stable interest rate climate, here are some key points to keep in mind:
Hype vs. Reality: A low-rate backdrop tends to spark IPO hype. Initial trading pops can be dramatic, but don’t assume first-day gains will last.
Assess Valuation and Quality: Low interest rates can inflate valuations, so examine the company’s fundamentals critically. Is the business model strong and the growth trajectory realistic?
Mind the Rate Outlook: Even if rates are stable now, they won’t be stable forever. We saw how IPOs faltered when rate hike fears hit in late 2021. Thus, keep an eye on the broader economy – if the environment shifts to rising rates, recent IPOs could underperform.
Diversify and Be Patient: In a frothy IPO market, it’s wise not to put all your eggs in one basket. Consider limiting IPOs to a portion of your portfolio and diversifying across sectors and asset classes. That way, if some new listings flop, your overall wealth isn’t hit too hard.
This year, 2025, we’ve seen very stable interest rates and a big pop in IPOs. I’ve noted in past articles how well some IPOs have done…
And it looks like the remainder of the year could bring investors even more opportunities, especially should we see calculated rate cuts.
