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Why are US banks shedding jobs?

What impact, if any, will Wall Street job cuts have on US banking stocks?

US flag on Wall Street Source: Bloomberg

What impact will the latest round of US banking job cuts have on their share prices?

This year hasn’t been great for US banks, first the US was hit by a regional banking crisis and now job cuts in the larger investment banks are on course to surpass 15,000 amid the worst recruitment market since the financial crisis following a pandemic-era hiring frenzy.

With Citigroup Inc (All Sessions) following in the footsteps of Goldman Sachs Group Inc (All Sessions) and Morgan Stanley by making thousands of their staff - mostly in investment banking and trading - redundant, the question is whether their share prices can benefit from these cost cutting measures?

Historically shedding jobs helps drive bank share prices up but in case of Citigroup Inc (All Sessions), which last Thursday announced a cull of 5,000 jobs, the positive impact has so far been muted.

Perhaps this has to do with the fact that although the number of Citigroup redundancies by the end of the second quarter sounds large, it only represents slightly more than 2% of its 240,000 workforce.

Such redundancies are nothing out of the ordinary as major US investment banks tend to trim their “underperforming” staff on a regular basis in order to keep those who survive the cull motivated whilst cutting costs.

When the job cuts mount up, though, as was the case earlier in the year when Goldman Sachs saw its headcount fall by 6.4 per cent to 45,400, the steepest drop in years, some investors begin to worry about the state of the economy and the impact it is having on banks.

As the Federal Reserve began its monetary tightening to drive down inflation, deal activity started to slow in 2022 and hasn’t recovered since. Combined with employees leaving at a slower pace amid waning demand for new appointments in the financial industry as a whole, most US banks are forced to reduce their headcount.

There are some exceptions, however. Bank of America Corp (All Sessions) (BofA) wants to eliminate 4,000 positions but is trying to do so via attrition, by not rehiring when employees leave, and thus avoid job cuts.

The largest US bank, JPMorgan Chase & Co (All Sessions), seems to be bucking the trend for now and has not announced any large-scale staff reductions.

Goldman Sachs’ share price struggles at technical resistance

Goldman Sachs’ share price is trying to overcome its May peak at $347.46 but is struggling to do so, having last week only managed to rise to a three-month intraday high at $347.73 before slipping back.

The investment bank’s share price has since oscillated around the 200-day simple moving average (SMA) at around $340 which capped it back in May.

Year-to-date the Goldman Sachs share price remains under water by around 2% and it can only enter positive territory if it were to rise and make a daily chart close above its May and current June highs at $347.46 to $347.73.

Goldman Sachs Daily Chart

Goldman Sachs Daily Chart Source: Tradingview
Goldman Sachs Daily Chart Source: Tradingview

Only if this resistance area were to be overcome, could the January and February highs at $374.35 to $379.68 be back in the frame for the second half of the year.

Since the 9-day Relative Strength Index (RSI) just turned back down from overbought levels it struggled in back in February and May, it is possible that another down leg might be seen before a bullish break out occurs.

Potential short-term downside targets can be seen along the 55-day simple moving average (SMA) at $330.11 and at the May and current June lows at $317.32 to $314.02.

The short-term bearish bias will remain in play while the Goldman Sachs share price remains below last week’s high at $347.73.

JPMorgan probes major technical resistance

JPMorgan Chase & Co’s share price has done much better than its rival’s. Year-to-date the investment bank’s shares has risen by over 6% with it trying to break through major technical resistance.

It can be found between the March 2022, January-to-March and May 2023 highs at $143.37 to $144.34. If it were to be overcome on a weekly chart closing basis, a significant bullish breakout were to occur. It would put the share price on track for its October 2021 to January 2022 highs at $169.81 to $172.96.

JPMorgan Weekly Chart

JPMorgan Weekly Chart Source: Tradingview
JPMorgan Weekly Chart Source: Tradingview

Only a slip back and fall through last week’s low at $139.76 on a daily chart closing basis would increase the odds of another failure to break through the above-mentioned key resistance zone being witnessed.

In this scenario the March-to-June uptrend line at $137.36 may provide support ahead of the $131.81 May trough.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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