The Stock Market is on Fire but Wall Street Trading Revenues have Flamed Out – What that means for your bonus and job

By Jack Kelly:

Unless something horrible happened after I wrote this article Tuesday late afternoon (given the current times it is not too improbable), the U.S. Stock Market hit yet another record high, led by solid gains in financial stocks and Apple’s new iPhone launch – including a new thousand dollar phone.

Some of the gains were attributed to the collective sigh of relief that Hurricane Irma did not cause the 200 billion dollars in destruction that was predicted.  Personally, I knew that the Hurricane hysteria was overblown when CNN sent its crack team of news anchors to Florida and kept them out in the storm to illustrate how bad it was.  When we watched, it was pretty clear that it really did not look so bad (at least compared to Hurricane Harvey).  Additionally, the market was happy that North Korea did not launch any new nuclear test missiles, which is nice of them.

Although the US and International stock markets have been setting continuous record highs since the US Presidential elections ended, things look #sad! at the big banks and Wall Street firms.

Citi bank CEO, John Gerpach, predicted further trading revenue declines due to lower volatility.  Volatility is a fancy industry term used to describe stocks, bonds, and currencies that quickly bolt higher or dramatically lower.  A smart trader could make big gains if she is on the correct side of those fast moving trades.  When the market slowly grinds higher, which it has been doing since November, it may be good for long-term buy and hold investors, it is not attractive nor lucrative for active traders. Trading, representing a large chunk of Wall Street money making activities, will cause revenues at investment banks to drop 15% for the third quarter.

Goldman Sachs figures they will have a 40% decline in Fixed Income, Commodities and Currencies trading.  J.P. Morgan CEO, Jamie Dimon said that trading revenue will likely fall about 20% in the third quarter.  It is similar stories with the other banks..

Unfortunately, strong investment banking underwritings and other activities will not be sufficient to bail out weak trading performance.

Due to the lower revenues, experts anticipate a decline in total compensation at the big banks, especially for investment banking, capital markets, sales and trading professionals.  There are concerns that this is the continuation of a ten year post financial crisis trend.

This backdrop contributes to the slow pace of hiring. When income is down there is a propensity to avoid spending in areas such as Compliance, Legal, Risk, Audit and other so-called “non-producing” divisions. I refer to it as “so-called” since it is silly to say that a group of employees who can save a company from paying literally billions of dollars in fines, penalties and litigations costs are not contributing to the bottom line.

When the revenue and profits flow freely, firms are more apt to feel confident about future business prospects and hire more quickly and frequently.  So, I hope you traders –  if there are any real live humans left on the trading floor, can read this –  whereas the annoying stupid artificial intelligence algorithmic software and dumb high-frequency trading robots can’t read (I apologize that I am being politically incorrect and hurt the feelings of our robot-Americans) – have a better fourth quarter.

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