Bonuses are poised to recover on Wall Street this year, fueled by strong equity market gains and recovery in investment banking, according to financial services compensation firm Johnson Associates.
Investment bankers helping companies issue debt are expected to have the highest raises in bonuses this year, from 15% to 25%, as companies sell record volumes of debt.
As initial public offerings come back, bonuses for equity underwriters are expected to rise 10% to 20% this year.
“We are seeing almost all segments on Wall Street raising compensation”, said the firm’s founder Alan Johnson. “This should be a good year, although there are risks stemming from elections in the U.S. and global conflicts”.
Although improving, incentives in investment banking are still far from their peak in 2021. The only segment where pay is above the 2021 level is private equity, but the workforce at these companies is considerably smaller than in banks, Johnson said.
Higher trading volumes are expected to increase bonuses for bond traders between 10% and 20%, and 5% to 15% higher for equity traders. Executives working at wealth management will probably have 5% to 10% higher compensation, whereas asset management and hedge fund employees are expected to receive 5% higher bonuses.
In asset management, although clients have been migrating from higher fee products to passive investment products with lower fees, the rise in stocks in 2024 has increased the volume of assets and profitability in the business.
The S&P 500 and Dow Jones Industrial Average both clung onto gains to close higher on Tuesday, extending recent winning streaks fueled by renewed expectations that the Federal Reserve will cut interest rates this year.
The advances pushed the S&P 500 to a fourth straight higher close, and its best winning run since March. For the Dow, it is now on its longest positive run since December 2023, gaining for the fifth session in a row.
The benchmark performances came despite Walt Disney slumping as a surprise profit in its streaming entertainment division was eclipsed by a drop in its traditional TV business and weaker box office.
Despite Disney’s drag, for much of the day the three main U.S. stock indexes had traded at their highest intraday levels in more than three weeks, extending gains after a weaker-than-expected labor market report last week fueled bets that the U.S. central bank will cut rates.
“I think the market is in this little holding pattern until the big data comes next week,” said Garrett Melson, portfolio strategist at Natixis Investment Manager Solutions, referring to the Producer Price Index (PPI) due on May 14, and the Consumer Price Index (CPI) scheduled for May 15.
Generally, the Fed and policymakers have been consistent in their message in recent weeks that rate cuts will come but the central bank is going to be cautious in implementing them. That message was repeated on Monday by Federal Reserve Bank of New York President John Williams and Richmond Federal Reserve President Thomas Barkin.
This meant, on a day lacking major data announcements, markets shrugged off comments from Minneapolis Federal Reserve President Neel Kashkari that the Fed may need to hold rates steady for the remainder of the year due to stalled inflation and housing market strength.
Overall, Friday’s payrolls data and better-than-expected earnings reports have helped soothe investor jitters around sticky inflation and a robust economy that have kept the rates elevated.
Traders are anticipating rate cuts of 46 basis points (bps) from the Fed by the end of 2024, according to LSEG’s interest rate probabilities app, with the first pivot to rate cut seen in September and another in December. They were expecting only one cut before the labor report last week.
“The market is far more hypersensitive to the data than the Fed is,” said Natixis’ Melson, adding that “the bar for the Fed to abandon the easing bias is extremely high.”
According to preliminary data, the S&P 500 gained 6.75 points, or 0.13%, to end at 5,187.49 points, while the Nasdaq Composite lost 16.69 points, or 0.10%, to 16,332.56. The Dow Jones Industrial Average rose 26.18 points, or 0.07%, to 38,878.45.
Megacap stocks Alphabet and Meta Platforms rose, boosting the main indexes.
Nvidia fell after the Wall Street Journal reported that Apple was developing its own chip to run artificial intelligence (AI) software in data centers.
Apple gained as it introduced a new chip called the M4, but put the new chip in an iPad Pro model rather than a laptop.
Tesla fell after data showed the U.S. automaker sold 62,167 China-made electric vehicles in April, down 18% from a year earlier.
Palantir Technologies tumbled after the data analytics firm’s annual revenue forecast fell short of analysts’ estimates.