Is Wall Street Disappearing?

Wall Street continues to contract; the number of employees declines; will it eventually simply disappear?

The declines show that a trend on Wall Street is gaining momentum. The biggest banks are making do with fewer numbers on the front lines—or those who deal directly with clients and bring in revenue. New rules on capital and risk taking have crimped profit, forcing banks into tough decisions about businesses to exit from and veteran moneymakers to turn loose.

Of course not. What's happening is the bloated financial Leviathan that began to inflate in the early 1980s and continued blowing up until 2008 has simple been losing air. After the initial massive layoffs as a result of the financial crisis in 2007-2008, the great bulbous Wall Street banks and brokerages have continued to shed pounds of people who simply aren't needed anymore.

One way to understand this is to look at the percentage of the S&P represented by financial services in 2008. It ranged from around 24% - 28%, an astoundingly large percentage of the total number of large companies represented by this index. In 1980, it was around 4-5%. The growth of this sector was anomalous and outsized, so the sector has simply and naturally adjusted. From a low of 8+% in 2009 after the 2007-2008 crisis, and as a result of the bull market in stocks since then, it's now 16+%. But it seems the overall long-term trend remains down.

Then there's technology. It's affecting virtually ever industry and business. Computers take over for humans. The trend will continue unless and until the internet collapses, the grid fails, and/or there are no more humans working (all possible, but nothing over which I'm losing sleep). Technology has reduced the need for humans in many capacities. In financial services, for example much of the trading done these days is done by HFTs - high frequency trading outfits. They use computer driven-models which buy and sell according to algorithms programmed into computers. Human involvement in actual trading is minimal.

So the recent "rebound" of the financial services sector in the S&P may be more a function of the bull market action in stocks since 2009, which has bid up the price of the stocks of financial companies. The actual number of employees continues to dwindle after those initial massive layoffs, although there are areas of "human growth" in this sector:

Still, some areas of the financial-services sector are growing. Hiring remains brisk among so-called back-office functions that don’t generate revenue, from technology and cybersecurity to legal and compliance divisions that are dealing with new postcrisis rules and enforcement cases.

And that confirms advice I've given to several folks considering careers in financial services: Go ahead, but be aware that it's a shrinking industry. And if you really want a job in this area, consider compliance or security (see above), two growing areas that should continue to grow not only in financial services, but in every area of business.