Stock Market Insight: What Does the Future Hold for the U.S. Economy?
The financial market reached its unprecedented highs during 2021, mostly due to a steady recovery of the U.S. economy from the effects of the pandemic and a massive injunction of funds under the Paycheck Protection Program (PPP).
An additional factor that certainly contributed to a spike in IPO activity was special purpose acquisition companies (SPACs). SPACs reached their peak in 2021 as they were originally viewed as a more favorable vehicle than the traditional IPOs due a faster execution and a presumably less-regulated process. However, after SPACs received some regulatory pushback and, with a few exceptions, mostly underperformed in the market, investors’ appetites for SPACs significantly cooled off. Traditional IPOs are once again rising in popularity as investors’ preferred way of taking companies public.
Recent global events — most notably, Russia’s invasion of Ukraine — once more showed how international events instantaneously affect the regulatory environment and create volatility of the financial markets. Sanctions have made it illegal for U.S., EU or UK companies to serve some of the biggest Russian businesses, leading to a rush of foreign businesses (including the Big 4 accounting firms) to leave that market entirely. Due to public pressure, many private and public companies announced partial or full halts to operations in Russia.
The recent tightening of the regulatory environment was also expected to affect China-based, U.S.-listed firms. The U.S. regulatory bodies have been struggling for years to gain access to work papers of audit firms in China, and many expected the follow up by U.S. regulators to intensify. Fortunately, U.S. and Chinese regulators are now heading toward reaching an agreement, thus adding stability to the markets.
Entities are now having more difficulties securing capital during the interim financing rounds, and many deals are completed on less-favorable terms than originally expected. However, the IPO market remains active as many companies still desire to become publicly traded companies and are still confident in their ability to raise funds. “Proceed with caution and expect volatility” seems to be the current signal of the financial markets.
Sviatlana LiPuma, CPA, is a partner at Friedman LLP and a member of the firm's SEC Services Group. She is a member of the NJCPA Content Advisory Board.