Every industry is dependent on an economic activity which drives the sales of the business. The classic example is the steel industry and car companies. The more cars are sold, the more steel is needed and the greater the raw materials which make steel are needed and the process continues. If the car market is depressed, less steel is needed, which means less raw materials are needed and the process continues. In the investment banking business, the economic activity is mergers and acquisitions. The top investment bank on Wall Street is Goldman Sachs and they are laying off people.

In an article by Saeed Azhar and Scott Murdoch of Reuters, Goldman Sachs laid off 3,000 people. That scale of layoffs is the largest since the 2008 financial crisis. The 3,000 plus is from a total workforce of 49,100. If you work for an investment bank, you live for the bonuses. Bonus are expected to fall 40% from last year. If the investment bankers are laying off people so are the M&A law firms.

Global investment banking fees nearly halved in 2022, fees were $132.3 billion in 2021 and $77 billion in 2022, according to Dealogic. The total value of M&A had slumped 37% to $3.66 trillion after hitting an all-time high of $5.9 trillion in 2021.

IPOs fell to $517 billion, the lowest level since the early 2000’s and a 66% drop from 2021.

Linking to dividend paying stocks, all industries have an economic activity which drives the market. In the above example there is a large market, but it has not as big as it was the year before. Money is made, but it is not the printing of money for everything you do. The deals are more selective and customers are less loyal, down markets is when customer loyalty is put to the test. In up markets, the institutions can try other companies, in the down markets, the investment bankers are bidding on deals they previously were too busy. In your investments, which economic activity drives the market and how does the major companies react to new business?

There are more questions than answers, till next time – to raising questions.