Here are three recent trends that show that the high-flying SPAC market may be coming back down to earth.
(1) SPAC IPO prices are fizzling
It's been a rough month for blank-check companies that have gone public. According to Dealogic data compiled by Reuters, 93% of SPACs that went public over the last week are trading below par value or $10 per share.
Additionally, the biggest first-day gain of a SPAC IPO this month was a mere 3.5% for Supernova Partners Acquisition Co II Ltd on March 1. That pales in comparison to to January's first-day pop of 32.5% for Altimeter Growth Corp II and February's best first-day jump of 24.9% for CM Life Sciences II.
SPCX-an exchange traded fund that generally holds shares of SPACs looking for target companies to acquire-is down 6% over the last month. However, it has still returned 10% year-to-date.
The strategists didn't detail when the peak would end, but said it's reasonable to assume that the monthly pace of SPAC transactions for the remainder of 2021 will slow.
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(2) Companies that have gone public via a SPAC are also taking a hit
The SPXZ exchange-traded fund holds roughly two-thirds of SPACS that have chosen to take a company public and one third blank-check entities seeking start-ups. It's slumped 12% over the last month and lost 21% year-to-date.
In addition, the Defiance Next Gen SPAC Derived ETF (SPAK), an index-tracking fund that holds about 40% SPACs and 60% post-deal companies, is down 11.7% in the last month and down 8% year-to-date.
(3) Cooling investor sentiment
There's also signs that investors are growing increasingly cautious on the rise in SPACs. David Trainer, CEO of investment research firm New Constructs, told Insider that investors are beginning to see through the fragile economic foundations of certain SPACs and "deservedly cutting valuations."
JPMorgan says that SPACs have been used for decades but appear to progress through boom and bust cycles.
The boom is typically driven by momentum, then imitation from sponsors, investors and target companies looking to take advantage of strong demand. Meanwhile, the bust occurs when too many poor quality players emerge, investor excitement fizzles and regulatory concerts arise, the firm said in a note.
Still, some see the recent pullback in SPACs as a temporary dip, and even a buying opportunity for investors who missed the beginning of the SPAC market's bull run.
Sylvia Jablonski, Defiance ETFs chief investment officer, told Insider that recent fluctuations in the 10-year Treasury yield may have impacted investor interest in growth companies, the kinds of companies SPACs typically target.
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"In my mind, this is a perfect opportunity for buying on a dip as the long term prospects for the world's most innovative, disruptive and new emerging technologies will likely reward investors over time," Jablonski said.
David Trainer said it's unclear if the SPAC mania is truly over. He said given the wild ride GameStop has been on of late, "there appears to be no end to the gullibility of a large number of investors."
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