So you're getting laid off
The employment purge is here.
Help isn't wanted. That's because it appears one of the remaining industry dominos yet to fall is wobbling: the banks. This week, we'll dive into the history, current state, and typical signals of Wall Street layoffs. These cuts can be connected to both micro- and macroeconomic news we will further look at.
Bottom Line Up Front
Italy just elected "the most far-right government since the fascist era of Benito Mussolini" (CNN). The Euro/USD exchange rate is predicted to be 0.968 by 6 PM EST.
U.S. mortgage rates hit 6.87%, their highest level since April 2002. Markets estimate a 54% chance the peak 30-year fixed rate mortgage will be above 7% by the end of the year.
Hurricane Ian is on path to strike Florida as Category 4, with the entire state under Flood Watch. Statewide evacuations have commenced, but markets are only predicting a 4% chance the storm will reach this level of severity.
Deep Dive: The Employment Purge
Cracks are forming in the U.S. labor market as Wall Street kicks off its season of quiet firing. Bankers have been on borrowed time this entire year. In January, tech titans began announcing that they planned to be more conservative about adding new employees.
Yet even amid the tightest labor market in half a century and fears of a recession on the horizon, banks still added to their ranks. Goldman Sachs Group Inc., Morgan Stanley, JPMorgan Chase & Co. and Citigroup Inc. each reported a substantially larger workforce in the second quarter compared with a year earlier. Goldman had the biggest boost in employment, increasing its staff by 15%. Across the six biggest US banks, the average gain in employment was 5.5% compared with mid-2021.
But that's what happens when your CEO is a DJ. Late last night, it was reported Goldman would begin laying off mid-level employees. Last week, Goldman laid off nearly a dozen bankers in their prestigious TMT division alone. Consumer retail, health care and industrials divisions have also been hit by layoffs. The Street now fears Goldman is just the first to trigger a domino effect across banks.
We forecasted unemployment this month, but let's dive into how you're specifically at risk.
A Brief History
Wall Street has seen its fair share of layoffs over the years, but this latest round brought about by inflation is shaping up to be one of the worst in recent memory.
One of the most devastating occurred in 1973, when Wall Street let 15% of its staff go amid a severe economic downturn. The firings continued into the next year when 12% of the workforce was booted out the door. That devastation was caused by a stalling economy, amid skyrocketing oil prices and rising inflation — very similar to the problems that the economy is facing today.
The next hit came in the crash of 1987. The recession of the early 1990s delivered a blow to Wall Street’s stomach after several years of double-digit employment growth. The Street’s ranks, which had ballooned to 163,000 by 1987, fell to as low as 130,000 in 1991. It would take seven years for Wall Street to recover from that round of pink-slip mania.
From 1995 onward, Wall Street began growing profusely. That coincided with the loose policies of the Federal Reserve, which caused the money supply to grow twice as fast as the GDP. By 2000, the economic boom of the late 1990s had pushed the number of Wall Street professionals up to 200,000.
The bursting of the tech bubble, paired with the events of September 11th, quickly let out all steam from the Street's momentum. These events led to a massive cut in personnel not seen since the early 1970s. In 2001, 16.4% of Wall Street lost their jobs. In 2002 and 2003, investment banks’ workforce contracted by another 1.1 and 1.6 percent, respectively.
But the economy recovered and The Street began growing again. By August 2007, it was near its 2000 peak with 192,000 workers. Then the credit crunch and housing crisis hit. We all saw how 2008 went.
Market volatility at the beginning of the year proved a blessing for Wall Street firms with hefty trading operations. For example, more manpower is needed to capitalize on big swings at Goldman and Morgan Stanley. But the push for bigger workforces isn’t uniform across large US banks. High interest rates have spurred lenders that focus on consumer banking to pare down staff as demand slows for some loan products, most notably mortgages.
Over the past two years, net employment on Wall Street has grown in 17 of the past 24 months. However, it appears this positive trend will continue to reverse in the next six to twelve months as interest rates continue to climb and the likelihood of an economic recession grows.
The Street is shrinking: Goldman Sachs, JPMorgan, Citigroup, Wells Fargo and Bank of America have all reportedly laid off employees this month. It is unclear where the bottom of this market will be.
Hedge of the Week 🗿
Meet Cordage, a proper Kalshian who regularly turns his accurate predictions into profits. His bet on the S&P 500 weekly close was no different. He was kind enough to share his strategy with our community:
As a frequent Kalshi trader, Cordage used our economic calendar and noticed August's CPI print (published September 13th) was set to come out soon. In the week leading up to the CPI's release, he began monitoring E-mini S&P 500 (ES) weekly contracts to see how prices would fluctuate. On the night of the 12th, he noticed the value of ES plummeted from 4110.75 to 3931.25. He then went over to Kalshi and predicted the S&P 500 would end the week with an index value between 3900-3949.
Cordage's macroeconomic prowess saw him return ~766.76%, getting into the market right before the price spike. In Cordage's words: "Find your own edge in this market."
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