- Investors have been sticking to the sidelines over a volatile first quarter
- This has dragging on ETFs that track investment banks and brokerage firms
- Wall Street’s busy season is underway, but for bank traders, market activity has been surprisingly tepid
Trading activity usually picks up at the start of the year, but investors have been sticking to the sidelines over a volatile first quarter, dragging on exchange traded funds that track investment banks and brokerage firms.
For instance, the iShares US Broker-Dealers ETF (NYSEArca: IAI), which tracks U.S. investment banks, discount brokerages and stock exchanges, declined 10.4% year-to-date while the SPDR S&P Capital Markets ETF (NYSEArca: KCE), an equal-weight rival to IAI, decreased 13.0%. In contrast, the broader Financial Select Sector SPDR (NYSEArca: XLF) dropped 6.0% so far this year.
Wall Street’s busy season is underway, but for bank traders, market activity has been surprisingly tepid.
“We’re clearly not seeing that normal seasonality,” Jonathan Pruzan, Morgan Stanley ’s finance chief, told the Wall Street Journal, pointing to the lack of usual first-quarter bump.
The first quarter is typically marked as the most active on Wall Street trading desks as institutional-sized investors like hedge funds put their money to work in the new year.
However, current activity is starting to mirror the continued disappointing final months of 2015 when economic growth concerns and depressed commodity prices dragged on trading activity and diminished revenue for major banks. Volatile markets pushed corporate clients to postpone stock offerings early this year, weighing on investment-banking businesses as well.
For instance, Morgan Stanley (NYSE: MS) revealed that first-quarter revenue this year was mirroring fourth quarter of last year’s – typically a much weaker quarter for bank trading revenue than he first quarter. By the end of last year, sentiment on trading plunged to a point where Morgan Stanley was forced to lay off 25% of its debt traders and salespeople in December.
Morgan Stanley makes up 8.1% of IAI’s underlying portfolio and 2.6% of KCE.
Credit Suisse Group AG analysts projected that the five largest Wall Street banks could report trading revenue of $19.1 billion for the first quarter, or 16% lower year-over-year. UBS Group AG analysts also believe this first quarter could be the worst in trading revenue for at least seven years. Citigroup Chief Financial Officer John Gerspach said revenue from equities and fixed-income trading likely declined 15% in the first quarter.
iShares US Broker-Dealers ETF