Business
Wall Street Layoffs Thousand’s as US Economy Tanks
President Joe Biden is facing criticism for his leadership as the economy deteriorates and Wall Street’s Goldman Sachs Group announces layoffs of thousands of employees to navigate a difficult economic environment.
The layoffs are the latest indication that layoffs are spreading across Wall Street as deal making slows. Investment banking revenues had fallen this year due to a slowdown in mergers and stock offerings, a sharp contrast to the blockbuster 2021 when bankers received large pay raises.
Goldman Sachs had 49,100 employees at the end of the third quarter after hiring heavily during the pandemic. According to the source, its headcount will remain above pre-pandemic levels. According to a filing, the workforce stood at 38,300 at the end of 2019.
The number of employees affected by the layoffs is still being discussed, and the details are expected to be finalized early next year, according to the source.
According to a separate source familiar with the situation, the bank is considering a significant reduction in the annual bonus pool this year. According to Reuters, this compares to increases of 40% to 50% for top-performing investment bankers in 2021, citing people with direct knowledge of the situation.
“GS needs to demonstrate that its costs are as volatile as its revenues, especially after a year in which it provided special rewards to top managers during the boom times,” wrote Mike Mayo, a Wells Fargo banking analyst.
“Goldman Sachs must now demonstrate that it can do the same when business is not as good and that they live up to the old Wall Street adage that they ‘eat what they kill,'” he wrote in a note.
In afternoon trading, JPMorgan & Chase Co (JPM.N) fell 1.3%, while shares of Morgan Stanley (MS.N) fell 0.6% and 1.3%, respectively.
This year, Goldman’s stock has dropped nearly 10%. They have, however, outperformed the S&P 500 bank index (.SPXBK), which is down 24% year to date.
According to a source, the latest plan would result in the layoff of hundreds of employees from Goldman’s consumer business.
In October, the bank signaled that it was scaling back its plans for Marcus, its loss-making consumer unit. Goldman also intends to discontinue the origination of unsecured consumer loans, a source familiar with the matter told Reuters earlier this week, indicating yet another exit from the industry.
With Marcus, Chief Executive Officer David Solomon took over in 2018 and attempted to diversify the company’s operations. In October, it was merged with the wealth business as part of a management reshuffle that included trading and investment banking units.
Trading and investment banking accounted for nearly 65% of Goldman’s revenue at the end of the third quarter, compared to 59% in the third quarter of 2018, when Solomon took over as CEO.
According to people familiar with the situation, Semafor reported on Friday that Goldman would lay off up to 4,000 employees as the bank struggles to meet profit targets. Goldman cut about 500 employees in September after pausing the annual practice for two years due to the pandemic, according to a source familiar with the matter at the time.
In July, the investment bank warned it might slow hiring and cut costs.
Global banks, including Morgan Stanley (MS.N) and Citigroup Inc (C.N), have reduced their workforces in recent months as a dealmaking boom on Wall Street has cooled due to high-interest rates, tensions between the US and China, the Russia-Ukraine war, and soaring inflation.
Wall Street Loses Ground as Fed Raises Rates to Fight Biden Inflation
Wall Street lost more ground on Friday as concerns mounted that the Federal Reserve and other central banks are willing to instigate a recession to combat Biden inflation.
The S&P 500 fell 1.1% for the third time in a row. The Dow Jones Industrial Average fell 0.8%, while the Nasdaq Composite fell 1%. The major indices fell for the second week in a row.
The pullback was substantial. More than 80% of the stocks in the S&P 500 index fell. Stocks in technology and health care were among the market’s heavyweights. Microsoft fell 1.7%, while Pfizer fell 4.1%.
The Fed raised its forecast for how high-interest rates will eventually go this week, snuffing out some investors’ hopes for rate cuts next year. In Europe, the central bank came across as even more aggressive in the eyes of many investors.
“Inflation remains the monster in the room,” said Liz Young, SoFi’s head of investment strategy.
Inflation has slowed from the highest levels in decades, but it remains excruciatingly high. As a result, the Fed has maintained its aggressive price-cutting strategy by raising interest rates to slow economic growth. The strategy increasingly risks slamming on the brakes too hard and sending an already slowing economy into a recession.
“It’s still unclear whether we’re in a mild, medium, or deep recession,” Young said.
Wall Street S&P 500 Down
S&P Global released a mixed report on Friday, emphasizing the recession risk. This month’s business activity slowed more than expected due to rising inflation. It also stated that the drop was the sharpest since May 2020, but inflationary pressures have been easing.
“In short, the survey data suggest that Fed rate hikes are having the desired effect on inflation,” Chris Williamson, a chief business economist at S&P Global Market Intelligence, said.
The S&P 500 dropped 43.39 points to 3,852.36. This year, it is down about 19%. The Dow finished the day down 281.76 points at 32,920.46. The Nasdaq index fell 105.11 points to 10,705.41.
Small-company stocks suffered less severe losses than the broader market. The Russell 2000 index dropped 11.19 points, or 0.6%, to 1,763.42.
Bond yields were volatile. The 10-year Treasury yield, which influences mortgage rates, increased to 3.49% from 3.45% late Thursday. The two-year Treasury yield, which closely tracks Fed expectations, fell to 4.21% from 4.24% late Thursday.
The Fed ended its final meeting on Wednesday by raising its short-term interest rate by half a percentage point, the seventh increase this year. Wall Street had hoped the Fed would signal a slowing of rate hikes in the run-up to 2023, but the Fed did the opposite.
The federal funds rate is at its highest in 15 years, ranging from 4.25% to 4.5%. Fed policymakers predict that the central bank’s rate will be in the 5% to 5.25% range by the end of 2023. Rate cuts are not expected before 2024, according to their forecast.
Several companies outperformed the market on Friday, reporting strong financial results and forecasts. Adobe rose 3% after exceeding Wall Street’s fiscal fourth-quarter earnings forecast. United States Steel rose 5.8% after providing investors with a positive earnings forecast.
