IPO activity has dramatically declined since the beginning of 2022, effectively ending the record-breaking public funding streak seen just a year ago.

So far in Q2, only 42 U.S companies went public, according to statistics released by Renaissance Capital, a Connecticut-based IPO management and research firm. Analysts see similar patterns across the board amid interest rate hikes and fears of a recession.

“I think that the leading cause is we saw a massive oversupply of activity last year. You had 400 traditional IPOs, along with 600 SPACs, go public. It was a record year, both in terms of volume and total proceeds raised in the IPO market,” Steve Maletzky, managing director and head of capital markets at William Blair, told Yahoo Finance Live (video above).

Of the nearly 1,000 traditional and SPAC new listings in 2021, approximately 400 U.S. debuts raised combined equity of nearly $140 billion. Last year’s momentum shattered previous IPO records in the 1990s during the dot com bubble.

However, the recent economic headwind, evident in the declining earnings from public companies and some big banks, has tumbled tech valuations and investors’ appetite. These factors, exacerbated by the Russian-Ukraine war and global inflation, have caused a "pullback in offerings" as uncertainty spreads, said Maletzky:

“Unfortunately, a lot of those companies [companies that went public in 2021] have not performed, and stocks have declined, and IPO markets and small- and mid-cap high-growth companies tend to perform well in low volatility environments. And right now, we have a lot of uncertainty on a geopolitical front as well as on a macroeconomic front as investors are trying to sort through the uncertainty around Fed policy and which direction we’re going from an inflation and a recessionary perspective.”

M&A activity

Despite some recent misses in bank earnings, certain financial sectors performed better than others. Maletzky pointed out, “ If you look at Goldman numbers this morning, while they beat consensus, investment banking revenue was down around 40%, but M&A was only down 5%.”