As is so often the case, the answer is both yes and no.
I worked at Morgan Stanley and J.P. Morgan during the 2004–2016 period as an institutional trader and then as a global strategist. I recently left to start my own fin-tech startup , so I have a good picture of how things went down and also how technology is changing Wall Street drastically.
Although the players change and the market gyrates between boom and bust, Wall Street finds a way to re-invent itself. Back in the 80s, junk bond traders ruled the world. By the late 90s, the rage was to be a tech banker or trader… then that went bust. In the 2004–2008 period the bond traders were kings. I am talking about friends that were 27 years old making well over $1mln dollars working 8am–4pm. Bottle service 4 nights a week, Ferrari, $2mln apartments, no money down in NYC… you name it.
During the 2009–2014 period the talent moved to the “buy side” to Hedge Funds and Mutual Funds. And trust me those were golden years in these places. Forget just the investors, there are salespeople at plain vanilla Mutual Fund companies that were making well over $1mln. And the conferences to rally the troops… way over the top. We’ll leave it at that. As Hedge Fund returns diminished with so much competition, talent has moved into Private Equity. There are mid-level guys at large PE firms that pull $1-$5mln a year right now. Meaning that their lifestyles at times are pretty extravagant.
The US stock market is currently (at the time of writing this post) expensive and is probably going to generate lower returns in the next five years than it did in the last five years. But does that mean “the stock market golden years are over”? Hmm… I wouldn’t bet on it. If you are an Emerging Market Portfolio Manager who just had a horrible 5-year run, you will probably have a very strong 5 year period coming up. They will be the ones buying the Ferraris and celebrating their kids’ birthdays watching Hamilton.
On the other hand, there are some secular trends at play. Technology and regulation have been chipping away at Wall Street pricing power over the last 20 years. In the late 1990s, regulation that separated research departments and investment banking dried up one of the biggest money makers for Investment banks. In the early 2000s, electronic trading forced institutional trading desks to cut commission fees dramatically. Post-2009 new regulation restricted banks from using their own balance sheets to invest on the other side of their clients’ trades. I was there pre-2009. It was the wild, wild west. A 25-year-old (me) was allowed to put the firm at risk for over $100mln overnight. Not a wise decision (fortunately that particular trade ended up working out just fine, but it could have easily gone the other way). No surprise, a lot of kids that would have gone to work at Goldman Sachs in 2007 now decide to work at Uber or Facebook. The party is over in that regard. So yes, there have been SOME changes that are probably secular that will not allow Wall Street to regain the pricing power it did back pre-2000s.
This blog post was originally posted as an answer to the question: Are the golden years of Wall Street and the stock market over? on Quora.com.
If you enjoyed this post, check out Wealth vs. Income.