There has been 'a perfect storm' on Wall Street
Banks will begin reporting Q1 earnings in mid-April, and everyone from Morgan Stanley's head of trading to the CEO of JPMorgan's investment bank has warned that it's going to be unusually weak.
The data-analytics firm Dealogic's preliminary Q1 results for investment banking fees show the worst first quarter on record since the dark post-financial crisis days of 2009.
According to Macquarie's banks analyst, David Konrad, "a perfect storm" of events has brought us to this point. Here's how he described it in a note on Wednesday:
We believe 1Q16 will likely be unusually weak owing to concerns over global growth (especially China), declining oil prices and concerns over potential growing use of negative rates around the world. These trends worked in concert to effectively shut down market activity in Jan and Feb and also placed pressure on asset managers (particularly hedge funds), causing many to de-lever.
That has resulted in an extremely weak IPO market, and volatility and choppy valuations have led to increased pressure on trading results.
Konrad expects shares of Morgan Stanley and Goldman Sachs to underperform in the short term, especially in trading, because of their exposure to asset managers and hedge funds, which have been deleveraging.
Those two banks also tend to be more exposed to credit and mortgage products in the fixed income, currencies, and commodities business.
JPMorgan, which ranked the top bank for investment banking revenues in 2015, is expected to continue to outperform its peers.