Markets have been crazy lately, if you haven’t noticed. Yesterday and Wednesday in particular were just plain nuts, with the Dow dropping as much as 460 points before nearly fully recovering a day later. The U.S. 10-year Treasury yield moved more than it has in five years. In short, volatility is back, and in a big way.
While investors are getting jittery, volatility in markets can be a good thing for nimble sell-side traders who have been sitting on their hands with nothing to do for much of the first half of the year. In May, for example, trading volume fell to its lowest since the financial crisis.
September was a different animal though, as inflation fears in Europe and other macro trends percolated trading floors and helped save the third quarter for many banks.
Citi, J.P. Morgan, Banks of America and Goldman Sachs all saw increases in fixed income trading revenue during Q3, due mainly to the final month of the quarter, as investors began fleeing equities. And activity appears to have spilled into September. Trading units don’t necessarily need a great market to make money, just an active one.
Another interesting spot to be in during current market conditions is private equity. Yes, the IPO market may become depressed, but many in the industry have been frustrated with what most see as an inflated equities market in need of a correction. Private equity firms have been selling, but there’s been no room to buy. The shoe may soon be on the other foot.
Blackstone, while announcing strong third quarter profit on Thursday, seemed to welcome a slightly beleaguered equities markets. “These types of investment environments end up becoming some of our best vintages,” Blackstone Chief Executive Stephen A. Schwarzman told analysts.
Sitting on $42.3 billion in capital, Blackstone is indeed ready to start buying. Rival PE firms are in similar positions. They’ve been loading up on capital, just waiting for the right time to spend. That time may be near.
