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There's been a downturn in the number of companies choosing to go public

RACHEL MARTIN, HOST:

Blame high inflation, rising interest rates, fears over global instability. Wall Street is reeling from economic uncertainty right now. And as NPR's David Gura reports, it's dramatically changing how private companies think about going public or selling shares on the stock market.

DAVID GURA, BYLINE: Wall Street is a window into how investors view the future of the economy. Lynn Martin is the president of the New York Stock Exchange.

LYNN MARTIN: I view markets as a mirror to the way people are feeling. A lot of times, there's uncertainty, and that winds up getting expressed in markets.

GURA: Anxiety and fear lead to sell-offs. Investors are less confident and less willing to speculate, and that's icing out new companies. There are about 81% fewer stocks newly listed on Martin's exchange in the first quarter of this year compared to the first quarter of 2021, when interest rates were near zero, and there was a lot of optimism as the U.S. emerged from the darkest days of the pandemic. Rachel Gerring helps companies go public. She's a consultant with the firm Ernst & Young.

RACHEL GERRING: It was a blockbuster year, by all accounts.

GURA: But in the last six months, the environment has changed radically as new risks have emerged.

GERRING: Rising interest rates, inflation risk, geopolitical tensions, supply chain disruptions.

GURA: And the stock market reflects all that. To fight inflation, the Fed is slamming on the brakes, trying to slow down the U.S. economy by hiking interest rates. And everyone is waiting to see what happens, including private companies that have thought about going public to raise money. Some companies compensate employees with stock. And the public gets to buy shares and participate in the future growth of those businesses. Part of Lynn Martin's job at the New York Stock Exchange is to keep in touch with executives who are considering it.

L MARTIN: So the pipeline is very strong, but it's on pause.

GURA: As interest rates rise, there's less money on the table to invest in new companies. At the Nasdaq, only around a hundred companies have listed this year so far, and the prospects in the coming months aren't looking great compared to last year, when 753 companies went public on the exchange. Nasdaq's chief commercial officer, Jeff Thomas, says it's another indication of how investors' expectations are different.

JEFF THOMAS: Are investors looking for a growth story, or would they rather see a company that's got some growth but also profitability?

GURA: In other words, how much appetite do they have for taking on risk when there's so much economic uncertainty, when it's hard to predict how these companies will perform and what they'll be worth in the future? That's a dramatic change from last year.

THOMAS: Part of the conversations with executives is getting them to wrap their head around the fact that they likely aren't going to get the same valuation this year that the bankers promised them last year.

GURA: On average, shares of companies that went public in 2021 are trading 42% lower than when they started trading. A handful of other factors are conspiring to make this a tough year. Chinese companies aren't going public in the U.S. because of a regulatory standoff between the two countries. Another thing that's disappeared are SPACs - they were hot last year and in 2020 - a shortcut for private companies to go public by pairing up with shell companies already listed on the exchanges. They also attracted less regulatory scrutiny.

THOMAS: There was a lot of money in the system last year. Investors were looking for places to put that money. SPACs seemed like a relatively attractive place to put their money.

GURA: But there's less money sloshing around. And now some 600 SPACs are sitting on the sidelines with no clear prospects. It's another reflection of how different Wall Street looks today than it did just a few months ago.

David Gura, NPR News, New York.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.

Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.