While the stock market continues to reach record highs, Wall Street firms and banks around the world have been quietly shedding jobs. Over the summer, several well-known banks announced higher-than-average layoffs and that trend has continued into the end of 2019. In August, HSBC cut more than 4,750 jobs shortly after Deutsche Bank eliminated over 18,000 positions from their payrolls. Around the same time, Citigroup, Goldman Sachs, and other prominent firms announced a combined hundreds of cuts. In early December, an insider told CNBC that Morgan Stanley would be handing pink slips to over 1,500 employees, and although the firm declined to comment, they and other banking giants are expected to continue making staff cuts as we move into 2020.
At a time of unprecedented economic prosperity, why are the world’s largest financial firms tightening their belts? There could be a number of factors at play here; what do they mean for the average American investor? And what can you expect from the stock market moving forward?
While a robust stock market may seem like a good thing, it can actually be bad for investment banks. Stock brokers depend on a cycle of boom and bust so that they can “buy low, sell high.” When the stock market remains consistently high for long periods of time, it can affect investment bank revenues, and that seems to have been the case in 2019. A report from business intelligence firm Coalition revealed that investment bank revenues at 12 of the largest American and European banks dropped 11% over the first half of 2019, reaching their lowest levels since 2006. The recently announced layoffs could be a response to these low revenues, and a bad sign for the future.
Low Interest Rates
Federal Reserve Chairman Jerome Powell put an abrupt halt to a series of planned interest rate increases in 2019, citing a desire to sustain our current economic expansion. Since then, the central bank has cut rates three times in an effort to keep credit readily available to American consumers. Unfortunately for investment banks, these low interest rates affect their profits, and their recent spate of layoffs could be a symptom of that problem.
Big changes are happening right now all around the world, and that makes investors (and banks) nervous about the future. Chief among their concerns are the outcome of the United States’ trade war with China, the global effects of Brexit, and the looming economic threat of advances in automation and artificial intelligence. At this point, it seems issues like these are giving investment banks cold feet and they may be cutting staff in response.
Although the concerns of the world’s top investment banks are very different from those of the average investor, their fates are often intertwined. When investment banks start eliminating jobs at the rapid pace seen in 2019, it makes sense to pay attention. Right now, it looks as if Wall Street and banks around the world are concerned about the future, and if you’re in or near retirement, you should be too. As we saw in 2008, a market crash can easily wipe out a retiree’s nest egg, leaving them with nothing to live on in their golden years. Luckily, there are ways you can protect yourself; get in touch with Crash Proof Retirement ® or sign up for one of our educational events to find out more about the revolutionary financial vehicles that can provide growth that outpaces inflation and protects your money in the event of a market downturn.