Some of Wall Street’s top executives were cautious about the direction of the economy when they released their third-quarter earnings results in mid October. They still sound just as somber, if not more so, a week later.
“If you listen to the dialogue today, I’d say there’s great uncertainty,” about new deal making among CEOs, Goldman Sachs (GS) boss David Solomon said Tuesday at the Future Investment Initiative, an annual gathering of CEOs and global leaders in Saudi Arabia.
Goldman last week reported that the firm’s profits dropped 33% during the third quarter due in part to the corporate caution underpinning a long-running investment banking slump, a pattern that repeated at many big banks with sizable Wall Street operations.
Many executives that had been touting signs of “green shoots” over the summer warned it would now likely take longer for any sustained gains to show up.
“Long term I’m certainly optimistic but I’m uncertain right now and if you’re a CEO and you’re uncertain you tend to be cautious about doing significant things that change the trajectory of your business,” Solomon added Tuesday.
The comments from Goldman’s CEO were one of several new warnings delivered Tuesday by Wall Street figures who decamped this week to Saudi Arabia, from JPMorgan Chase (JPM) CEO Jamie Dimon and Citigroup (C) CEO Jane Fraser to BlackRock (BLK) CEO Larry Fink and Bridgewater Associates founder Ray Dalio.
A new war between Israel and Hamas added an ominous backdrop to the event. Other concerning developments highlighted by the Wall Street figures included the persistence of inflation, a war in Ukraine, escalating tensions between the US and China, commercial real estate woes and uncertainty surrounding an upcoming US presidential election.
“It’s hard not to be a little pessimistic,” Citigroup CEO Jane Fraser said, pointing to the recent Hamas attacks in Israel and the escalating tensions in that region of the world.
Fraser is in the middle of a corporate restructuring that will strip away management layers and cut employees at her bank.
BlackRock’s Fink, who runs the world’s largest money manager, cited the economic risks of new world conflicts. “There’s consequences to war, and to fear and instability and I think it will lead to less hope and a lot more fear, and it will then lead to a much greater contraction if we don’t navigate this as a world.”
Dimon — who said when releasing his bank’s earnings on Oct. 13 that “this may be the most dangerous time the world has seen in decades” — also did not hold back this week when warning about the possible economic dangers to come. JPMorgan is the largest US bank by assets.
“Prepare for possibilities and probabilities, not calling one course of action, since I’ve never seen anyone call it,” Dimon said, adding that “I want to point out the central banks 18 months ago were 100% dead wrong” — a possible reference to a prior view among some central bank officials that inflation would be transitory.
“I would be quite cautious about what might happen next year.”
Dimon has warned that interest rates could top 7% and on Tuesday he urged people to be ready in case that happens.
“Whether the whole curve goes up 100 basis points, I would be prepared for it,” he said. “I don’t know if it’s going to happen, but I look at what we’re seeing today, more like the ’70s, a lot of spending, a lot of this can be wasted.”
Dalio, who founded what became the world’s largest hedge fund, said he also worries about the effects of higher rates.
“If you take the time horizon, the monetary policies that we’re going to see and so on, will have greater effects on the world,” Dalio said. “And you look at the world gaps, so it’s difficult to be optimistic on that.”
David Hollerith is a senior reporter for Yahoo Finance covering banking and crypto.
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