Will Capital Markets Reopen in 2025?

By William Atkins

A lot can change in a day or, in this instance, in 90 days.

The economic landscape of 2025 has quickly shifted from one of optimism about interest rates and business expansion to one of uncertainty. With mixed signals from the Fed on rate cuts and tariffs, US and global market fluctuations demonstrate concerns regarding the overall impact on the world economy.

The S&P 500 and NASDAQ indices have declined approximately 15% and 20%, respectively, since early January, and the US Treasury yield curve has been steepening – indicating that inflation concerns haven’t been quelled and that rate cuts aren’t a slam dunk.

And, much as nature abhors a vacuum, the capital markets abhor uncertainty.

Capital Markets Abhor Uncertainty

Examples abound: We’ve seen tariffs threatened against Mexico and Canada, delayed, and then ultimately imposed – but on a selective basis, effective early April and (who knows?) perhaps with more changes to come, with the imposition of global tariffs announced on April 2nd further muddying the picture. North American Automotive manufacturers have seen the abrupt end of decades of increasing cross-border integration, with one already (temporarily?) shutting down plants. And Life Sciences companies are concerned about potential regulatory review delays caused by government funding changes. This isn’t going to stop.

So, will public capital markets reopen in 2025? Probably not – at least not anywhere to the degree expected earlier.

CoreWeave did its IPO the week before last, and at the time of writing, the company’s share price has started to trade above its $40 launch price. The bookrunners haven’t “broken syndicate” yet (i.e., stopped their stabilization of the share price), though, and so we don’t have a clear indication of where this $1.5 billion offering (downsized from $2.3 billion+) will go. However, the indication is that this isn’t the transaction that portends any near-term reopening of the public equity markets.

Of course, it’s easy to blame all this on changes in US political culture and governance. Still, perhaps these changes are also causing underlying market cyclical and structural issues to become more evident. The heavy concentration of stock market outperformance in just seven key tech stocks in 2024 probably wasn’t going to last.

The Magnificent Seven Are Falling

At the end of 2024, the Magnificent Seven comprised 35% of the index, having grown from 20% only two years earlier, and accounted for over half of the S&P 500’s gains. Fast forward to today, we see that the Magnificent Seven’s index share feel at the end of March to 32%*. Market cyclicality and reweighting are reasserting themselves, as they always do. 

But it’s not just a question of portfolio allocation: most sectors represented in the S&P 500 show reductions in expected earnings versus analysts’ end-of-2024 forecasts. In a “beat and raise” equity market culture, it doesn’t take much to knock the market back a few steps. Structural issues remain regarding the extra compliance and other overhead burdens faced by public companies: One study has shown that total public market and other compliance costs can run as high as 4% of market capitalization for a company – all in a market where listed stocks are roughly half the number at their peak in the late 1990s.

Private capital markets can be a different story. Still, even considering the decades-long growth and increasing dominance of venture capital and private equity, they are subject to the same pressures that exist more broadly. VCs and PE firms want to (need to!) unload their portfolios, return capital to their limited partners, and free up capital for further investing. 

Everyone suffers when there’s a lack of liquidity in the markets. Continuation funds and secondary sales are increasingly useful tools to create liquidity, but their absolute aggregate size can’t replace the size and depth of the public market. Thus, the IPO drought continues.

What’s a CFO to Do?

So what’s a CFO to do? With the glaring exception of most companies in the AI arena – where optimism still rules and where those familiar “animal spirits” never really went away, most companies are caught between a sub-optimal capital markets environment and business and shareholder pressures. Uncertain environments usually require more capital buffers – e.g., for increasingly expensive supply chains or to allow for changes in top-line growth. So it’s a fair assumption that those companies that will survive and prosper in these uncertain times have strong, forward-looking finance functions that have built resilient balance sheets and that are scenario planning for continuing uncertainty.

Financings are getting done – away from the headlines and for well-managed businesses with clear execution prioritization. Investors – whether public or private – aren’t paying for hope value but understand that fundamental value comes cheap at times of crisis. Proving fundamentals and demonstrating that they have worked up contingency plans get a management team the capital they need to survive and prosper as and when the broader market changes.

At FLG, my colleagues and I are often called to enhance capital raising and reduce business vulnerability. Over the last four years, we’ve helped our clients raise over $7 billion in growth financing, IPO, and M&A transactions. In every instance, this was because management and boards were united, consistent and credible in their messaging – messaging backed up by demonstrable facts and trends.

It’s tough out there, but it’s in these times that so many successful companies are born. Netflix, Airbnb, and Microsoft were all born in rough economies and markets, and they not only survived but also prospered and created new paradigms for how to do business.

*as of March 24, 2025