The US stock market turned lower Monday after ending last week up 6% in an encouraging rally. The S&P 500 dropped 0.4% Monday morning, erasing some gains from the start of trading. Both the Nasdaq and Dow Jones drifted lower this morning, too, signaling a return to the choppiness that has dominated the market for the past six months.
Investors have noted that the current stock market performance is hard to predict because there is a large amount of uncertainty rolling around in the US economy. Inflation, a tight labor market, a stagnant economy, and shipping constraints have all contributed to the uncertain atmosphere surrounding Wall Street.
That uncertainty has also turned Wall Street’s recent hiring boom into a drawback. “When banks have a revenue problem, they’re left with one way to respond,” a Wall Street recruiter tells CNBC. “That’s by ripping out costs.” Capital markets revenue has steadily dropped even as firms like JP Morgan and Goldman Sachs have added around 15% to their workforce in the past few years.
Stock Market Frustration
Stock prices have been on a wild ride since the start of 2022. The three major indexes have shed considerable value since the beginning of the year, but they’ve done so while whipping wildly between recent highs and lows. This has contributed to the chaotic investing habits this year that have perplexed analysts and frustrated investors.
The S&P 500 is on track for its worst first half of the year since 1970. Thankfully, some market experts say the worst might be over. “As bad as  has been for investors, the good news is previous years that were down at least 15% at the midway point to the year saw the final six months higher every single time, with an average return of nearly 24%,” says Ryan Detrick, LPL Financial’s chief market strategist.
This week will see companies like Micron and Nike release their quarterly revenue reports, which could shed some light on the near future for the stock market. It’s possible that these companies will show an earnings shortfall as a result of reduced orders from retailers like Walmart and Target, which have both struggled to keep up sales amid unprecedented inflation.
Wall Street Layoffs Loom
Capital firms like J.P. Morgan and Goldman Sachs could be on track for massive layoffs. Just six months ago, things looked great for Wall Street. IPOs, mergers, and a booming capital market made hiring sprees possible. The biggest banks were raking in money hand over fist, so they bulked up their workforces to handle the massive influx of new responsibilities.
Now, the stock market has taken a beating from inflation, and the biggest Wall Street firms are poised to lay off huge swaths of their workforces. “I can’t see a situation where banks don’t do RIFs [reductions in force] in the second half of the year,” says DMC Partners’ head of recruitment, David McCormack.
The ongoing invasion of Ukraine has pressured global markets to slow demand in one corner of the economy. Inflation has curtailed spending in the consumer sector and forced retailers to slash their orders amid plummeting demand. Finally, the Federal Reserve is making aggressive moves to curtail inflation, which many investors fear could lead to the dreaded pattern of stagflation. In a stagflation environment, the value of currency remains low while reduced demand results in a stagnant economy. This pattern almost always leads to a recession, making this moment extremely tricky for the Fed.
Russia Defaults on Loans After Washington Pressure
The US’s economic war against Russia is finally bearing fruit. Moscow has defaulted on several loans as a result of Washington’s continued pressure on the Russian economy. A grace period on two foreign loans totaling $100 million lapsed on Sunday night, putting Russia into international default for the first time in over a century. Russia attempted to pay the loans back using its own currency, rubles, but was rebuffed by the international community’s continued sanctions.
The Western world has largely condemned Russia’s illegal invasion of Ukraine. However, rather than risk a world war by openly combating Russia’s military, the US and EU decided to levy harsh economic sanctions on Moscow to force President Vladimir Putin into choosing between financing the war in Ukraine or paying for sovereign debt. Putin has opted to finance the war effort, which has been going poorly for Moscow.
Russia holds that the default is not genuine, as the country has the cash reserves to pay back lenders as well as the willingness to wire the payment. However, international sanctions have blocked the payment in rubles, leaving Russia in a no-win scenario. “Considering the G-7′s announcement over the weekend that the member nations plan to ban the importation of Russian gold, there appears to be an intention to continue increasing Russian sanctions,” explains Reed Smith partner Adam Solowsky.