Investors watching out for a range of headwinds. In twenty twenty four, Linn Martin, the president of the New York Stock Exchange, outlining three principal trends that may shape global markets this year, volatility remaining, a reinvigorated IPO market, and US capital markets continuing to lead the world. Lind Martin, a police are saying, joins us at the table, Morty, Lyn.
Thanks for having me. It's great to be with you.
It's good to see you again. Let's start with the geopolitics. Clearly the risk in the Middle East is front and center after the events at the weekend. How does that contribute to this theme of high volatility sticking around for longer in your view?
Yeah, you know, the geopolitical environments are quite complicated environment. I think we can all agree with that. It clearly impacts the US equity markets and the global equity markets by contributing to volatility. The surprise factor, that's what's going to contribute to volatility, and this weekend's events were, you know, one of those surprises.
Unfortunately, We've talked about this before, how capital markets might be increasingly polarized regionally, geographically, it might see a situation where it's US capital markets for US com companies Chinese companies capital markets for Chinese companies. Do you see it quite the same way?
You know, I don't.
I mean, the US capital markets are the envy of the world. They have withstood multiple pandemics, multiple wars, and they've really shown to be the best source of liquidity for a founder, for an entrepreneur to raise the capital that they need to change the world. If that's true, more than more than ever. In fact, you know, you see the ability.
To tap the US capital markets as.
Aspirational, but also when you look at the cost of capital, the most efficient way to raise capital to change the world.
Let's put these two ideas together. So you think that because of the potential volatility, because of the unknown unknowns later this year, are people moving forward their plans for IPOs?
Absolutely? You know, we have a tremendous amount of companies on the road.
We're actually about to welcome one a large one this week. M or Sports, which is the holding company for Willis for Louisville Slugger, for a lot of the brands you know, our.
Children and we use every day.
And just later today we're about to welcome a UK based company, Flutter, who is transferring they're listing out of their regional market over to the New York Stock Exchange a little bit later this morning.
One of the reasons why IPOs haven't been as active as people had expected was because of just a lot of private equity companies not wanting to take the valuation cuts. And we've seen that even with Reddit right they have five billion dollar market capitalization different lower than what some of the previous private market valuations had been. How much are people accepting a haircut, accepting not getting the price that they wanted in order to really cash out of those investments.
You know, I think the main you had two reasons really impacting the IPO markets over the last two years. You had the volatility, the increased volatility when the VIX is trading a you know, a thirty handle as opposed to you know, below twenty. It's not that founders couldn't get deals done, it was what is my stock going to do the day after IPO, the month after IIPO? What macroeconomic factors are going to influence.
The way my stock is trading? Now?
You also see that there is a recalibration of valuations in the market. I would make the argument though, that twenty twenty one had inflated valuations in the market, so you know twenty twenty one was one side of tail risk. This is the last two years or the other side of tail risks on the Bell curve.
There is this structure story as well, and we've talked a lot about it around this table and in Dallas as well at the World Economic Forum, that we're seeing regulation shift that will push more financing activity into private markets. When you start to think about those themes, do you think the lifespan, the arc of a company's lifespan, the timeline of it is going to change just in terms of how long they stay private for versus how long they started private previously.
I think companies are going to be more disciple about when they tap the public markets. Obviously, they're going to want to be able to articulate a path to profitability or profitability. So I think what you're going to see is when companies come to market the public markets, they're
going to be public market ready. They're going to be able to articulate a very clear message to investors, to their shareholders that will enable them to thrive I don't think there's any substitute though, for the public markets, and that's been proven time and time again.
Have you seen that change already? That change you just described absolutely.
With the amount companies we have on the road, we have a tremendous mount companies on the road. We have a tremendous amount of companies that we're working with at the moment to tap the public market. So we're really excited about the prospects for twenty twenty four.
I want to talk about one threat for twenty twenty four and beyond AI. I've asked you about this before, Let's go through it again. Confronting an era of misinformation for someone in your position, how are we going to go back to doing this?
You know, I'm really glad you made the point about misinformation, because AI is just a continuation of data driven trends that have really existed for more than a decade. If you've got good data that is going to enable models to add efficiencies to markets. It's something that we've seen in production for more than a decade now with the AI or large language models that we employ to add
transparency to the energy markets. And as a result of the large language models that we have had in production for a decade. We've seen the more opaque parts of the energy market have tremendous amount of transparency, a tremendous amount of liquidity added to them, particularly over the last couple of years.
Did you guys see what happened with Taylor Swift and X the AI sort of renditions of her and that basically it was preventing you from googling Taylor Swift search and search on X because there are pornographic, artificially intelligence generated images. But it sort of shows you some of the challenges in misinformation or just a false videos. I am curious how many companies that are planning to IPO
our tech companies are building themselves as such. I mean, is it like one hundred percent their tech company, even if they sell furniture.
You know, in this digital age, everyone uses technology. Everyone's a technology company. You sort of missed the boat. If you're not employing technology in some way, shape or form to drive your business forward, who do you.
Think right now is your biggest competitor? Though, I mean, to John's point, the private markets. We've been talking about that for a long time, and there was a discussion.
About some sort of transfer.
Is it just, you know, another stock exchange, or is it another avenue of financing?
You know, I don't really think we have a competitor because the role of the New York Stock Exchange is just very different than a traditional stock exchange or a listing's venue.
Our job is to be the stewards.
Of the US capital markets, and since the US is such an important part of the global capital markets, we really are the stewards of the global capital markets, allowing entrepreneurs and innovators to tap the markets to raise the capital they need in a cost efficient fashion and to democratize investing.
You expect there to be a much more active year in the IPO world. We have seen this with a lot of banks predicting much more active capital markets activity this year. How much is that predicated on significant rate cuts by the Federal Reserve It.
I think the market's already pricing in the rate cuts to a certain extent.
The one thing that I'm watching.
Is the discrepancy between the US equity markets and how it's pricing in call it two or three rate cuts, and then you look at the Fed fund futures markets. If you go further out in the curve. Towards the end of the year, it's pricing in probably five or six rate cuts, so there's a bit.
Of discrepancy there.
The reason why I'm watching this is because that's what's going to impact volatility. Really, volatility is what's going to I would say impact the IPO markets. But for the short to medium term, I think we're going to see some good IPOs.
You wrote last year that seventy percent of IPOs executed actually couldn't meet the provisions on the New York section. What is the biggest provision that's holding some of these companies back from going to the NICY.
Yeah, So we've got a variety of quantitative standards. A lot of those are focused on the minimum amount of shareholders, the size of a company's float that they actually put into the public markets, as well as the minimum.
Market cap of a company. And you're right, more.
Than seventy percent didn't qualify for US last year, and that number was even higher in twenty twenty two.
New York Stock Exchange President Limartin alongside maybe we talked about politics, remember and Davos, and the whole room just went quiet. No one wanted to discuss does this changed your world, this race this year.
You know, the only way it changes our world is it's impacting volatility and the IPO window.
So our job is to.
Make sure that, particularly in years like twenty twenty four, our systems are are reliable, resilient and open so that people can efficiently manage risk.
That's how you diplomatically sort of dodge that question without addressing it.
Basically, they're going to look at the markets and not address the politics of it. I will just say Saturday Night Live will get funnier because they seem to really enjoy this Lynn. When you talk about volatility, how much is really driven by an unexpected weakening in the economy. Is that what you're really referring to that is potentially the greatest supplier of volatility or is it a lot of different things?
You know, it's a lot of different things.
And the important thing to look at when you think about volatility. So there's the VIX, which is clearly the measure of equity vall. But then there's also the MOVE, which is our index, which is the Treasury market ball, and those levels are still elevated. It's still above one hundred. If I look at the move Index, which I do every day.
Said thank you to be brilliant. Lynn Martin, the NYSC President, joining us around the table.