Bear Stearns marks a watershed for financial services professionals and employers. How much time will pass before Wall Street returns to hiring mode?
The near-collapse and hastily arranged rescue of Bear Stearns has sparked a sudden turn in psychology on both sides of the job market "aisle."
"There's been a shift of the pendulum back to employer power and away from employee power," a headhunter who focuses on the hedge fund sector told me Wednesday. "That's what happens whenever there's a flood of quality resumes. We've gotten resumes from firms that we've been trying to get resumes out of for a long time. Now they're being handed to us on a silver platter."
To be sure, a chorus of headhunters have said since mid-January they're deluged with resumes - a complete reversal from six months ago, when well-qualified, available candidates were rare and precious commodities. During the initial months of 2008, fundamental and market news has also carried the clear message the banking business is weakening, pushing back recovery expectations from mid-2008 into 2009.
But that steady drumbeat of bad news pales next to the impact from Bear Stearns. The above-mentioned recruiter evoked the 2001-02 employment meltdown - a comparison that even our most bearish sources had consistently rejected last year.
When and How Will Downturn End?
In July, when early rumblings of the credit crunch were being felt, an eFC story listed several possible future events that could signal a downturn in Wall Street hiring.
Now that the downturn is evident a natural question is, when and how will it end? If the U.S. economic recession began in December, then bullish strategists like Miller Tabak's Tony Crescenzi assert it's already close to its likely midpoint. Stocks tend to bottom near the midpoint of a recession. Also, market bottoms often coincide with cathartic events like the Bear Stearns bailout.
There's a big difference, however, between a stock price bottom and a job market bottom. Financial markets are forward-looking. In contrast, hiring plans and compensation levels are largely backward-looking. Expectations of future sales and profits do play a role. But a given employer's current "run-rate" and recent operating results usually loom larger in the equation. Even when business does turn up, employers tend to wait as long as they possibly can before pulling the trigger on new hires.
So, can financial markets provide a window into employment conditions down the road? We believe they can - but with an important caveat. The lag time from financial market signal to job market recovery is likely to be several months, perhaps longer. That makes any conclusions more useful for longer-term career planning (involving education, preparing to shift fields, and the like) than for gauging anyone's near-term prospects in terms of jobs, promotions, or compensation.
Some further thoughts:
Things will get worse before they get better.
That's pretty much a no-brainer, based on the Bear Stearns blowup, other recent troublesome news (additional layoffs at UBS, Lehman and even, reportedly, Goldman Sachs), and
our previous observation that Wall Street headcounts have yet to retreat significantly from their 2007 peaks.
Keep an eye on stocks.
Share prices, especially for financials, should provide the quickest, simplest read on how the smart money envisions the industry's health six to 12 months forward.
Keep both eyes on credit markets.
For a more nuanced picture of Wall Street's future profitability and confidence levels, look at credit spreads for financial institutions - single-name credit default swaps, CDX and ABX indexes and other gauges - as well as credit market conditions generally. Pay particular attention to short-term credit indicators like secured lending rates and haircuts for non-government collateral, and spreads between Libor and fed funds or T-bills. A recovery of money market conditions is essential to restore the smooth functioning of both the U.S. and global financial sectors and the economy as a whole.
The market doesn't manage your career - you do.
Even in a downturn, there is much you can do to further your personal career goals. Avoid precipitous, panicky moves, and think hard about whether to take a job you wouldn't take if conditions were better in your specialty. (Assuming you're confident that demand for your specialty will eventually rebound).