It will not have been a Happy Passover in markets, according to CNBC’s Jim Cramer.
“This market, it’s got a disease,” he warned on Monday’s episode of “Mad Money.” “We’ve been hit with a plague of initial public offerings. That isn’t over yet. And for those of you celebrating Passover tonight, the plague of IPOs is worse than the plague of locusts, frogs — definitely not as bad as the whole death of the first-born thing, though.”
Cramer’s concern is straightforward.
“A stock market is like any other market. It’s all about supply and demand,” he said. ” That’s basic economics 101. So when you flood the stock market with too much new supply, say via endless torrent of IPOs, that puts real downward pressure not just on those stocks but on the entire averages.”
He cited data from Renaissance Capital showing that in the first quarter alone, 64 companies came public, raising a $US6.10 billion.
“Just in the first quarter of 2014 we’ve seen twice as many deals as we had during the first quarter of last year,” he said.
Biotech stocks have been particularly voluminous. Historically, the market averaged about 12 biotech IPOs a year; we just had more than double that for the year in one quarter.
“No wonder that group has fallen for five straight weeks and is now down an average 22%,” he said.
Fortunately, the plague will eventually have to cure itself.
“What would a cure look like?” he asked. “If we get less enthusiasm for IPOs like we saw last week, I think that would be a good thing. We are not going up with these all priced, we are going down. Bottom line: We’re beginning to see the possibility of a decline in the number of new deals.”
Watch the full clip: