Policy Uncertainty: How Will Big Banks Weather the Storm?


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Major financial institutions in the United States are gearing up to report a rough third quarter, according to revised analyst profit estimates. Revenue from fixed-income trading declined as much as 30 percent on the year thanks in part to a seasonal slowdown that was compounded by both monetary and fiscal policy uncertainty.

Reuters reports that global investors are trimming their positions in U.S. stocks and bonds because of the opaque policy environment. A survey conducted by the publication from September 13 to 26 shows that investors in the U.S., Europe, and Japan cut holdings of U.S. equities to a four-month low of 41.7 percent, down from 42.9 percent in August. Before the conclusion of a two-day Federal Open Market Committee policy meeting on September 18, the retreat from equities could be explained by a widely held belief that the Fed would begin to taper asset purchases.

That assumption turned out to be untrue, and news that the Fed would continue asset purchases temporarily stimulated the markets before focus turned to the budget debate.