As stock markets make big moves, isn’t volatility what traders wanted?

As stock markets globally continue to fall, the Dow Jones Industrial Average Index fell 1,032.89 points or 4.15% today (February 8, 2018).

The Dow Jones Industrial Average Index is now down 860.89 points or 3.48% in 2018 after today’s fall. It is down 2756.25 points or 10.36% from the peak of 26,616.71.

Isn’t volatility what the traders wanted? Bonuses have been down for traders as trading revenues slumped in Q4 2017 and mostly fell for the entire year of 2017. As we covered here, the Volatility index (VIX) hit all time lows in 2017.

Here are some comments for leading banks from their Q4 reports (for FICC and Equities),

Goldman Sachs

Goldman Sachs Fixed Income, Currency and Commodities (FICC) revenues down 50%.

Net revenues in Institutional Client Services were $11.90 billion for 2017, 18% lower than 2016.

Net revenues in Fixed Income, Currency and Commodities Client Execution were $5.30 billion for 2017, 30% lower than 2016, due to significantly lower net revenues in commodities, interest rate products, currencies and credit products, partially offset by significantly higher net revenues in mortgages. During 2017, Fixed Income, Currency and Commodities Client Execution operated in a challenging environment characterized by low levels of volatility and low client activity.

Net revenues in Equities were $6.60 billion, 4% lower than 2016, due to lower commissions and fees, reflecting lower market volumes in the U.S., and lower net revenues in equities client execution, reflecting lower net revenues in derivatives, partially offset by higher net revenues in cash products. Net revenues in securities services were essentially unchanged. During 2017, Equities operated in an environment characterized by increasing global equity prices, while volatility levels and client activity levels remained low.

Bank of America

“FICC revenue of $1.7B declined 13% from 4Q16, driven by lower volatility and client activity across macro products, particularly rates products

Equities revenue of $0.9B was flat to 4Q16, reflecting growth in client financing activities, offset by a decline in cash and derivatives trading due to low levels of market volatility.”

Deutsche Bank

The Corporate & Investment Bank (CIB) was impacted by low volatility, low institutional client activity and difficult trading conditions in certain areas. Fourth-quarter revenues were EUR 2.7 billion, down 16% year-on-year, reflecting low volatility in all asset classes and low client activity in key businesses. Revenues in Fixed Income & Currencies (FIC) were down 29% year-on-year, while combined FIC and FIC-related Financing revenues were down 20%. Growth in Rates and stable year-on-year revenues in FIC Credit were more than offset by declines in Foreign Exchange and Emerging Markets. Revenues in Equity Sales & Trading were down 25% year-on-year. Additionally, US dollar weakening had a negative impact on revenues.”

J P Morgan Chase

“Markets & Investor Services revenue was $4.4 billion, down 22%, driven by lower Markets revenue, down 26%. Fixed Income Markets revenue was down 34% against a strong prior year, driven by continued low volatility, tighter credit spreads, and the impact from the TCJA on tax-oriented investments of $259 million”

Citigroup

“Markets and Securities Services revenues of $3.4 billion decreased 17%, as a decline in Markets revenues was partially offset by higher revenues in Securities Services. Fixed Income Markets revenues of $2.4 billion in the fourth quarter 2017 decreased 18%, reflecting continued low volatility, as well as the comparison to a more robust trading environment in the prior year period as a result of the U.S. elections. Equity Markets revenues of $530 million decreased 23%

“The main purpose of the stock market is to make fools of as many men as possible.” – Bernard M. Baruch

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