foxex: The Incredible Shrinking Bonus

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Tuesday's Headlines

Bank Bonuses Drop on Wall Street

Markets Close

Dow
25,657.73 +0.55%

S&P
2,818.46 +0.72%

Nasdaq
7,691.52 +0.71%

VIX
14.68 -10.10%

INV Anxiety Index
99.99 Neutral

US 10-Yr Yield
2.414 -0.25%

Markets Rise

U.S. markets rallied, faltered, then rallied again to close near session highs on Tuesday. This, despite more gathering clouds over the fragile economy. Housing starts for February came in lower than expected and consumer confidence for March was much weaker than forecast. Those housing stats should bounce back in March and April as the weather improves and mortgage rates keep sliding lower following the Fed's plan to keep interest rates at current levels.

If you are in the market to buy a home or refinance your existing home, this is exactly what you want to see.(Chart courtesy of freddiemac.com)

Consumer Confidence Falters

The Consumer Confidence Index fell in March after rising in February. The decline was not unexpected given the overall shakiness in the market, and it is still above levels consistent with an expanding economy. The thing is, the economy is decelerating, and the longer the slowdown, the more it will weigh on consumer confidence.

Here is the Federal Reserve's forecasts for U.S. GDP growth as they stand today:

2019: 2.3%
2020: 2.0%
2021: 1.9%

There are a lot of wildcards in those forecasts, including the trade issue with China, the impact of the slowdown of the European economy, oil prices and the stock market. Oil prices and the stock market weigh heavily on consumers' psyche because we see those numbers every day whether we want to or not. Oil prices manifest themselves as gas prices at the pump, and they are relatively low in the U.S., averaging $2.64 per gallon, according to AAA. The stock market, as we know, is near record highs. If and when those two factors change, look out below.

Shrinking Bonuses on Wall Street

$153,700

That's the average bonus for people who work in the financial sector in New York City, according to the New York State Comptroller. Believe it or not, that's 17% lower than 2017 despite the fact that industry profits rose 11% over the same time period.

At $153, 700 the average bonus was still double the average annual salary in the rest of the City's workforce, according to the Comptroller. The shrinking bonus was attributed to a smaller bonus pool of $27.5 billion that had to be shared with a larger number of employees in the sector. Less pie to go around to a bigger table.

The average salary for a financial services employee in New York City is $422,500 as of 2017 (the latest figures available). Before we break out the 'Occupy Wall St!" signs again, keep in mind that very few of the 181,300 people who work in the financial sector make anywhere near this kind of money or receive a bonus of $153,000. Most of those employees are back and middle office workers who earn around $77,100, the average salary in the private sector in New York City. However, nearly one-quarter (24 percent) of the industry's employees in the city earned more than $250,000, compared with less than 3 percent in the rest of the city's workforce.

This chart from the NYS Comptroller shows how Wall Street bonuses have grown and shrunk over the past two decades:

More on the Apple Card

We wrote yesterday about Apple's latest announcements about its content strategy. At yesterday's event, the company also announced the launch of Apple Card, its new credit card that it is issuing with Mastercard and Marcus, the retail bank owned by Goldman Sachs. The content announcements got a lot of attention, which is what happens when you pack the stage with the likes of Oprah Winfrey, Steven Spielberg and J.J. Abrams, to name a few.

But Apple's foray into the credit card world got our attention because we are fascinated with the future of payments, consumer behavior and the companies that are trying to own that space.

We have two takes for you on that. I wrote about how the Apple Card is the ultimate sticky product that Apple has designed to keep its 1.4 billion users in its ecosystem, even as iPhones sales are declining.

Christine DiGangi, Editorial Director at our sister site, TheBalance.com, wrote about the real deal behind the rewards that Apple is promising through its new card. The interest rates are very competitive, but the details are in the fine print, which is particularly tough to find.

Highly recommended: What is the Interest Rate on the Apple Card?

Bed Bath and Beyond Moves

A little chart action today.

When you see a stock move more than 20% in a day, something is afoot. Either it is being acquired, it added 'cannabis' to its name, or there is trouble brewing.

Such is the case with Bed Bath & Beyond (BBBY). The stock soared 22% as activist investors Legion Partners Asset Management, Macellum Advisors and Ancora Advisors, which collectively own 5% of the company, are attempting to overthrow the entire board and replace the CEO. It's too early to tell if their move will work, but given the stock's move today, it looks like they have what insiders like to call 'leverage'.

More News:

Tiffany Rally Has Stalled Around Its Annual Pivot

Why Homebuilding Stocks Once In Bear's Claws Can Rebound Longterm

Merck Stock Set to Test 18-Year Resistance

Chart of the Day: Bank Stocks Still Reeling from Dovish Fed, Falling Yields

Both the major global banks as well as smaller regional banks continue to be pressured heavily in the aftermath of last week's Federal Reserve announcement, which was even more dovish than previously expected. Since the Fed's decision, which lowered economic growth (GDP) expectations and called for no rate hikes in 2019, bank stocks have fallen sharply along with bond yields.

While a dovish Fed that's reluctant to raise interest rates may often be good for the stock market as a whole, banks are quite a different story. Since these institutions receive a major portion of their profits from interest, they earn significantly less in lower interest rate environments. Also, a slowdown in economic growth generally places a drag on overall borrowing activity, which also hurts banks.

The chart above shows the SPDR S&P Regional Banking ETF, otherwise known as KRE. From the day before last week's Fed announcement, KRE has dropped more than 9%, which is quite a lot for an ETF in the span of just a handful of trading days. The drop down to Monday's low was more like 12.50%, but Tuesday saw a stabilization of plunging bond yields and an upturn in the overall stock market that helped boost bank stocks off their lows. During the course of the recent fall in regional banks, KRE also plunged sharply below its 50-day moving average, lending even more of a bearish bias to this sub-sector. While bank stocks could indeed rebound as lower interest rates for longer potentially becomes the norm, worsening economic growth concerns could be the major factor that extends the sell-off.