- No BS. Just Bullish.
- Posts
- No BS. Just Bullish.
No BS. Just Bullish.
Masterclass | The Fed | Size Matters
The Wall Street Skinny
September 18, 2024
This Week on The Floor
Jen and Kristen here…you do NOT want to miss this!
We’re hosting our very first LIVE event on September 25th.
It’s a FREE MASTERCLASS covering the top 5 technical concepts you need to master for your investment banking and private equity interviews.
If you don’t think you can make it live, make sure to sign up anyways so that you can get the replay. We’re giving away 10 subscriptions to Macabacus (an Excel add-in used by top Investment Bankers) during the training, so you gotta be there live to win!
It’s Fed day! Our expectations for US central bank action.
What does it mean to be bulge bracket when it comes to Investment Banks?
Coming up on the economic calendar: BoE and BoJ after the Fed.
Markets Recap / Deal News
Interviewing this week? Here’s some content for your conversation.
Today the Federal Reserve - the central bank of the United States - will announce its interest rate decision.
My personal view is that the Fed is likely to cut 25 basis points (0.25%). Why?
Optionality, of course.
A 50bp cut might signal the Fed feels they are behind the curve.
Instead, the optics and effectiveness of saving dry powder for a larger cut at their next meeting, should it be necessary, seems favorable.
Much easier to go 25, 50, 50 than 50, 25, 50 (or 75, 100…!).
Not to mention that a Republican win in the election - while not the base case scenario that the market is pricing in - might mean they have to stop…or even reverse course as that outcome is viewed as likely stimulative & inflationary.
All eyes on Jerome Powell…
What the market will be watching even more closing is the signaling about next steps.
Economists all over Wall Street will dissect every word of the FOMC statement today looking for bread crumb clues for future policy.
The Federal Open Markets Committee (“FOMC”) will also share the quarterly update to its “dot plot” (covered in our newsletter before). This is a compilation of individual policymakers’ forecasts for the expected path of of the Federal Funds rate going forward.
Source: Bloomberg
If you have an interview coming up, you should be prepared to answer questions about the Fed. Some samples to prepare for below:
Easy
Who is the Chairman of the Federal Reserve?
What is the Federal Funds rate (both the number and its function)?
What is the Fed’s dual mandate?
Medium
What is the Taylor Rule for the Fed Funds target rate?
Did you think the FOMC statement was dovish or hawkish, and why?
What is the market pricing in for November using Fed Funds futures?
Hard
What trade would you put on based on today’s Fed announcement? Size? Carry? Risks?
How does today’s rate decision impact the housing market?
How might today’s rate decision impact a discounted cash flow model for a company?
What’s the fuss about “bulge bracket” banks? 🏦
What’s so different about the Investment Bank across the street?
We got asked on social media: “what is a bulge bracket bank? What does that mean?”
“Bulge bracket” is simply an industry term that refers to the largest Investment Banks.
But hang on…
Largest in what sense?
Deal fees? Well…which types of deal fees? There are regional superpower banks like Nomura and Mizuho that rank in the top ten in Equity and Loan origination fees in this year’s league tables, but are not often grouped in the “bulge bracket”.
Assets? Well…there are banks with giant commercial operations like Truist whose assets rank them amongst the biggest banks in the world that are not considered “bulge bracket” investment banks.
2024 League Tables as of June. Source: The Financial Times
Generally speaking, bulge bracket firms are firms that have a global presence across all regions, rank amongst the top 5-7 in deal fees and trading revenues, offer all products and services, and handle the largest deals.
It’s like the popular group in school. Everyone knows their names, and while some people come into and out of the group from time to time, the core remains the same.
This distinguishes them from the so-called “elite boutiques”: lesser-known names outside the industry like Evercore, Moelis, and Lazard.
They don’t tend to have the same scale of global presence or offer the same range of products and services that bulge brackets do. Some may have a regional or industry-specific specialization in their advisory services.
But within their area of specialty, they are well-respected and have significant market share.
At the end of the day, these are simply naming conventions that signal public perception.
So when considering a career at any firm, prestige, compensation potential, and range of opportunity should be among the factors that you consider.
Just for fun, we broke it down for you here during March madness:
This Week in the Markets
If you’re interviewing for a job in any kind of markets-facing or investing-based role, it helps to have a handle on economic data releases.
We will be rolling out a training program helping you learn to read the financial news later this month!!
Bank of England and Bank of Japan on deck after the Fed!