CNBC’s Jim Cramer warned Thursday that investors should brace for more selling pressure as the market could be flooded with lots of new stock supply.
“We’re about to get hit with the last thing we need … a stock glut,” the “Mad Money” host said. “When you’ve got lots of new supply coming online at the same time … and not a lot new money to stoke demand, it puts a ton of pressure on the averages.”
The Nasdaq Composite has fallen nearly 8% over the past month, bearing the brunt of a market-wide sell-off as investors trim positions in tech and growth names amid rising interest rates and inflation uncertainty. The index is down 6.4% in the past three sessions alone.
Cramer noted the selling pressure could increase as new companies go public while insiders from businesses that made their public-market debut last year are able to sell their shares.
A lock-up period for Snowflake —which went public last year — ends on Friday. This will allow some early investors and executives to sell their shares. The stock has already fallen about 24% since its first lock-up expiration in December.
“The stock market is about to have a serious oversupply problem with no concomitant buybacks or dividends to fall back on this moment,” he said.
“Remember, these are just the beginning. There are more lockup expirations on the way, meaning more pressure for the stock market,” he said.
Meanwhile, more companies are going public as the IPO market loses steam, Cramer said.
Oscar Health, a health insurance tech company, has lost 18% its value since its public-market debut on Wednesday. The company priced its stock at $39 per share for its IPO.
Coupang, an e-commerce company from South Korea, is also set to debut in the U.S. market as it seeks to raise $3.6 billion. The company ranks highly on CNBC’s Disruptor 50 list.
Cryptocurrency exchange Coinbase and gaming app Roblox are reportedly foregoing the IPO process in favor of direct listings on the Nasdaq exchange and New York Stock Exchange, respectively.
The SPAC (special purpose acquisition company) playbook is not working as it once did, Cramer said, pointing to recent post-merger announcement declines in Churchill Capital IV, Vector Acquisition and Reinvent Technology Partners.
“This market is in rough shape, and it makes sense that it’s in rough shape, and it won’t get easier if we’re trying to digest a massive oversupply of stock given that there doesn’t seem to be much new money coming in,” Cramer said.
“Let’s just hope the underwriters and even the companies themselves decide to pull their merchandise, realizing that this is a bad time to come public and we need to stop the flood before it drowns us all.”