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Playing the role of a heroic matador, the Federal Reserve Board of Governors swept its cape yet again in mid-November, cutting the discount rate for a third consecutive time this year. Coupled with visions of merger talk sweeping the market, a subsequent rise of secondary indexes is expected to restore investor faith in the new issues market.
"The IPO market has cautiously reemerged," said Joe Hammer, director of equity syndication at Adams, Harkness & Hill. "Some of the offerings that were temporarily shelved are being updated for December business. We could see some additional offerings find their way onto the calendar."
The Russell 2000 index of small-cap stocks is up about 1.8% in the wake of the Federal Reserve's latest 25-basis point ease on Nov. 17. After almost hitting 400 in closing last Tuesday at 396.6, the index has rallied 8.4% since the Fed's first move on Sept. 29 and stands 27.8% above its annual low just two months ago.
"Every step of the way that the Fed continues to ease should be supportive to the smaller-cap market," said Satya Pradhuman, director of small-cap research at Merrill Lynch. While the rate reduction immediately mitigates a small-cap credit crunch, giving such companies access to bank debt, the subsequent rise of secondary market valuations is expected to provide a much-needed lift to the new issues market heading into December. One of the main attractions of IPOs is that they enable investors to purchase stock in bulk at a fixed price, thus increasing its value...