What just happened?
The US stock index is ahead of other major indices around the world, particularly Europe. The benchmark US stock index, the S&P 500 swiftly regained the ground lost during the pandemic.[1]
What does this mean?
It took decades for the shares to regain their previous peak after the Wall Street Crash of 1929, years after the global financial crisis of 2008, but only five months after being hit by the coronavirus.[2] Gains in the US have outstripped many other markers as London’s FTSE 100 remains about 20% lower than its January high, while France’s CAS 40 is off about 19%.[3]
The rise in the US stocks is lifted by gains in tech. Companies such as Facebook, Apple, Amazon, Netflix and Google have seen huge gains in recent months as investors bet on firms expected to benefit as households and businesses switch to making purchases over the internet.[4] The S&P has clawed back more than 99% of the losses suffered between its pre-coronavirus high for 2020 which was also its all-time peak, and its low in the March sell-off.[5] The Dow Jones Industrial Average and Nasdaq Composite reached a record as the value of their shares rose in August.[6]
Furthermore, Shares of airlines and cruise operators went up as United Airlines rose by more than 9% along with American.[7] Financial, industrial and energy stocks provided most of the gains while investors, keen to purchase some of the most battered company shares in the hope of turning a large profit, continued to snap up shares in hotels, cruise lines and banks.[8] Another factor that explains the remarkable turnaround of the stock market is the federal reserve action. When the market was crashing in early March, America’s central bank was acting to reassure investors that it would go to any lengths to support the world’s biggest economy and prevent a financial crisis.[9]
How does it affect the legal industry?
The US stocks rose following the announcement overnight by congressional leaders of an agreement on a deal for an unprecedented stimulus package estimated at US $2 trillion to help the economy recover from the coronavirus outbreak.[10] It is argued that the Fiscal aid from US lawmakers helped the Fed’s recovery efforts and in preventing the financial crisis.[11]
Movements in the stock market have an impact on the economy of the country. At LawMiracle, we believe that with the stock market going up, it is likely that the transactional practices will increase, resulting in work overload for private equity, banking and corporate lawyers. Lawyers play an important role in the transactional process by advising debt and equity issuers, investors, private individuals and investment banks which structure and sell the financial instruments.[12] Increased transactional practices also result in increased stock exchange disputes between brokers or over dividend distributions which would also add to the work of the lawyers.
Written by Samriti Rudhra
Assessing Firms:
#kirkland&Ellis #SimpsonThacher&Bartlett #Latham&Watkins #Skadden #Ropes&Gray #DavisPolk&Wardwell #CahillGordon&Reindel
References:
[1] Tommy Stubbington, ‘US streaks ahead of Europe in stock market recovery’ (Financial Times, 17 August 2020).
[2] Larry Elliott and Richard Partington, ‘Five factors behind the US stock market’s miraculous turnaround’ (The Guardian, 22 August 2020).
[3] ‘US stocks hit new after coronavirus crash’ (BBC, 18 August 2020).
[4] Phillip Inman, ‘Stock markets boom as hope rises for US economic stimulus Covid-19 vaccine’ (The Guardian, 11 August 2020).
[5] Tommy Stubbington, ‘US streaks ahead of Europe in stock market recovery’ (Financial Times, 17 August 2020).
[6] Fred Imbert and Yun Li, ‘S&P 500 hits another record, closes above 3,400 for the first time as Apple and airline rise’ (CNBC, 23 August 2020).
[7] Ibid
[8] Phillip Inman, ‘Stock markets boom as hope rises for US economic stimulus Covid-19 vaccine’ (The Guardian, 11 August 2020)
[9] Larry Elliott and Richard Partington, ‘Five factors behind the US stock market’s miraculous turnaround’ (The Guardian, 22 August 2020).
[10] Jodi Xu Klein, ‘Coronavirus: US stocks up after lawmakers agree on unprecedented stimulus’ (South China Morning Post, 25 March 2020).
[11] David Rndall and Saqib Iqbal Ahmed, ‘Detached from reality? Why US stocks just hit a new high’ (Thomas Reuters, 18 August 2020).
[12] ‘Capital markets explained’ (Chambers Student, December 2011).
Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.