The risk that ends a rally is rarely the one on the front page. Investors fixate on the loud threat, the one with missiles and emergency meetings, while a quieter one compounds in the background.
By the time the quiet one shows up in a brokerage statement, the front page has usually moved on.
Right now, the loud threat is Iran. Re-escalating tensions between the U.S. and Tehran have dominated the tape this week, and it is exactly the kind of geopolitical shock that gets blamed whenever stocks stumble. Oil, defense, and safe havens all trade off every fresh headline out of Washington.
And yet the market has mostly absorbed the war news, with semiconductor stocks even staging a midweek rebound. That resilience raises an uncomfortable question. If bombs cannot knock this bull market over, what can?
Jim Cramer believes he has the answer, and it is not in the Middle East. The “Mad Money” host said Wednesday, July 8, that the flood of new stock and bond issuance hitting Wall Street poses a bigger danger to the rally than the Iran conflict, according to CNBC.
Why new stock supply can smother a bull market
Every dollar that goes into a new stock offering has to come from somewhere. In practice, it usually comes from selling shares investors already own, which means a crowded deal calendar can quietly drain the same rally it feeds on.
In a normal year, that supply arrives as a trickle, and buyers barely notice. A few deals price each month, index inflows and retirement contributions soak them up, and the rally moves on without strain.
The trouble starts when several giant deals demand cash in the same narrow window. At that point, fund managers have to raid winning positions to write the next check, and the selling shows up in stocks that had nothing to do with the offering.
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Cramer has been building this case for more than a month. Excess new supply takes down bull markets faster than interest rates or geopolitics do, he argued in early June, according to CNBC.
He even tied the pressure to the market’s most important name, arguing that investors were raiding their winners to fund new artificial intelligence (AI) deals. “Nvidia‘s looking like the biggest piggy bank in the world,” he said at the time.
By June 8, his mood had soured further. “Things have changed. For the worse,” he told viewers, CNBC reported.
His worry list at the time ran from a strong jobs report that dimmed hopes for interest-rate cuts to the SpaceX debut pulling money away from the rest of the market.
A month later, the deals have only gotten bigger, and the caution that once looked early now looks prescient.
Michael M. Santiago / Getty Images
Rivian and SK Hynix deals sharpen Cramer’s supply warning
On the July 8 episode, Cramer said the amounts companies have raised over the past month are staggering, pointing to Alphabet’s (GOOGL) giant stock sale, SpaceX’s (SPCX) initial public offering (IPO) and $25 billion bond deal, and fresh debt offerings from companies including Amazon (AMZN), according to CNBC.
The pace is what changed his tone. I stacked up the equity raises completed or launched since early June, and my tally comes to nearly $195 billion in new stock alone, before counting the bond deals piling on top.
Here is what that pileup looks like:
- SpaceX raised a record $85.7 billion in its June IPO, the largest share sale in history, according to Reuters.
- Alphabet completed a roughly $80 billion stock sale to fund its AI infrastructure buildout, CNBC indicated.
- Rivian (RIVN) sold 75 million discounted shares this week in a raise of roughly $1.5 billion that knocked the stock down 18% in a single session, CNBC confirmed.
- SK Hynix is set to price a roughly $28 billion Nasdaq listing on Thursday, July 9, the second-biggest share sale ever, according to Reuters.
Two of those deals bother Cramer the most. Rivian’s discounted sale suggests buyers may no longer absorb new equity at rich valuations, while SK Hynix’s listing could force institutions to dump existing holdings just to make room for it, he said, according to CNBC.
The details make both cases sharper. Rivian priced its shares well below the prior close only days after posting stronger-than-expected second-quarter deliveries, meaning even good news no longer guaranteed a deal at full price.
SK Hynix, meanwhile, is the world’s leading maker of the high-bandwidth memory chips that sit next to Nvidia’s processors in AI data centers, and its Seoul-listed shares have roughly tripled this year, pushing its market value past $1 trillion, according to Reuters.
A deal that size arrives with real gravity, pulling capital toward it from every corner of the tech trade.
Related: Jamie Dimon warns of ‘little ‘tsunami’ lurking in bull market
The collateral damage is already visible in the market’s flagship stock. Nvidia (NVDA) has shed almost $1 trillion in market value from its peak, even after leading Wednesday’s semiconductor rebound, according to CNBC.
My read for anyone holding an index fund is blunt. The cash that funds every new listing comes out of stocks people already own, so when institutions trim the megacaps sitting inside your retirement account to pay for the next hot debut, your balance feels the offering, whether you wanted a piece of it or not.
What could still save this bull market
Cramer stopped short of calling a top. The market has not reached a breaking point yet, and a pause in IPOs and secondary offerings, along with more merger activity, could still rescue the rally, he said, according to CNBC.
His patience, though, has a deadline measured in weeks, not quarters. If the current pace of supply continues much longer, “The bull will suffocate under the weight of all that new paper,” he warned.
The first test arrives almost immediately. SK Hynix is expected to begin trading Friday, July 10, under the ticker SKHY, and demand has already exceeded the shares on offer, based on deal terms seen by Bloomberg, Yahoo Finance reported.
So watch what happens to the chip stocks investors already own when the newcomer starts trading. If SK Hynix pops while Nvidia and its peers hold their ground, demand still has fuel left in the tank, and the issuers will keep coming back for more.
If the winners bleed to pay for it, Cramer’s quiet threat will have announced itself. And this time, the front page will be looking in the right place.
Related: The new phase of the bull market — and how to buy in
