Women in Finance: Abby Joseph Cohen rose through the ranks of Goldman Sachs, eventually becoming partner and the firm’s Chief Investment Strategist.There is no denying the existence of a glass ceiling on Wall Street, with numerous studies indicating that women in finance are still underpaid and under-promoted. But that hasn’t stopped Abby Joseph Cohen, who rose through the ranks of Wall Street heavyweight Goldman Sachs, eventually becoming partner, and the firm’s Chief Investment Strategist. This year, Ms. Cohen was honored by Forbes and selected #19 on their ‘100 Most Powerful Women in the World’ list.She is the perfect fit for our Women in Finance Series.

This year, Ms. Cohen was honored by Forbes and selected #19 on their ‘100 Most Powerful Women in the World’ list.1

Women in Finance: Cohen’s Background

Like many of the members of our Masters of Finance series, Ms. Cohen was born in New York City. She later attended George Washington University and Cornell, earning a bachelor’s and master’s degree in economics, respectively.2 She is also a CFA charter holder.

Ms. Cohen learned the ins and outs of economic theory while working at the Federal Reserve Board in Washington D.C. before finally heading to Wall Street in the late 1970’s. While listed as an economist and analyst, she is famous for her role as investment strategist.

Chief Investment Strategist

It was when Ms. Cohen joined Goldman Sachs that she earned her fame, predicting the great bull market of the 1990s, all the while making frequent appearances on CNBC as Goldman Sachs’ Chief Investment Strategist.

Rarely focusing on individual stocks, Cohen’s focus is more top-down, analyzing the equity markets as a whole. As such, she looks at market-based financial ratios such as Price to Earnings (P/E) and Total Market Cap to GDP (Gross Domestic Product) to assess the attractiveness of the markets.

Women in Finance: Criticisms

Some contend Cohen is a perma-bull (permanently bullish, or thinking the stock market is going higher) and is famous for simply riding the wave of the great bull market of the 1990’s. When the market is not in an uptrend, her predictions have been mixed.

At the end of 2007, Ms. Cohen forecasted the S&P 500 would reach 1675 over the next twelve months.3 That call didn’t seem unreasonable, given that the S&P 500 was ended 2007 at 1468. But in 2008 the financial crisis hit (not to mention the fall of Lehman Brothers and Bear Stearns) and the S&P 500 actually ended the year at 903, eventually following to the ominous 666 level on March 9,  2009. Abby Joseph Cohen was replaced as Chief Market Forecaster for Goldman Sachs in March of 2008, in favor of David Kostin.4

Chief Investment Strategists are almost always bullish. This speaks to the conflict of interest that exists between the sell-side strategist and their customers. When people believe the market is going higher, banks make money. Enthusiastic investors make lots of trades which mean increased commissions for stock brokers while the increased order flow leads to more profits for market makers. Private companies become optimistic and decide to become public companies. And the investment banks are there to assist every step of the way, from early venture capital investments, mezzanine financing and eventually going public through via IPO. Each of these steps is very profitable for investment banks.

Women in Finance: Changing Attitudes from Strategists

At the end of 2014, participants in the Barron’s Roundtable gave their predictions for 2015. As a whole, those polled were bullish, calling for a mean increase in the markets of 10%.5 But in 2015, the broad equity markets actually lost 2.3%.

Consequently, the 2015 roundtable participants have tempered somewhat. While their average prediction is for an increase of 10% in 2016 (to a level of 2220 for the S&P 500), the underlying assumptions have been ratcheted down.6 For example, earnings per share for the S&P 500 are expected to rise just 5% to $123.50, versus an 8% prediction last year.7 It should be noted that David Kostin has a prediction of 2100 for the S&P 500 for 2016, roughly, 4% below current levels.8

It should be noted that David Kostin has a prediction of 2100 for the S&P 500 for 2016, roughly, 4% below current levels.8

Here is an oversimplified example of how a strategist might come up with a forecast for 2017. Assume the firm’s quantitative research department model’s estimate the S&P 500’s earnings per share for 2017 to be $130.91, 6% higher than 2016’s estimate. Given the likelihood of interest rate hikes, you expect the market’s multiple to compress slightly to 17, from its current 17.7 level. Based on multiplying these two estimates, you could make a case for a market trading at 2225 over the next twelve months. This would represent a muted increase of just under 2% for the S&P 500.

More Caution from Goldman

On Thursday morning, another one of Cohen’s colleagues at Goldman Sachs Asset Management, Mike Swell, was on Bloomberg television sharing his concerns on leverage and an overheated credit market. Swell makes an interesting point about all the fraud and accounting issues that are being uncovered. He contends that is a result of companies pushing harder for profitability when they are experiencing profit margin compression. He cautions that margin compression is a leading indication of recession.

This is an interesting dichotomy because the Goldman Sachs Asset Management is more buy-side than its decidedly sell-side parent. Goldman Sachs Asset Management is a division of Goldman Sachs that operates like an internal hedge fund. As such, the employees there are more in tune to the risks in the market, not just the opportunities the markets presents.

Swell favors TIPS (Treasury Inflation Protected Securities) which have been shunned in favor of higher yielding, yet riskier, investments in today’s low-interest rate environment. We should point out that TIPS would not perform well in a period of extended deflation, which is a prediction by a small, yet an increasing number of economists.

Online Masters of Economics Degree

If you aspire to be the next Abby Joseph Cohen (or David Kostin), a Master’s degree in Economics is basically a requirement.

There is also an increasing number of online Masters in Economics programs which provide flexibility for working professionals advancing their careers within limited spare time. The curriculum in these programs will vary somewhat but generally cover similar material. The real difference can be found within the faculty and the school’s brand.

For example, American University offers an online Masters in economics degree covering the major areas of study in economics including Macro and Microeconomics, Econometrics, Labor and Public Economics. This program has a focus in Applied Economics, bridging the gap between economic theory and practicality. It ends with a Capstone seminar, allowing students to apply all the knowledge they learned throughout the program.

What makes this program so unique is it gives students the option to complete a portion of the degree on American University’s Washington, D.C. campus. This allows students to establish relationships with both students and faculty and feel like they are a real part of the school. A major employer of economists is government agencies so it could provide an invaluable experience to spend some time in the nation’s capital.

Employment Opportunities for Women in Finance and Economics

The academic requirements to become an economist come with a silver lining- generous compensation. The median annual pay for an economist was $99,180 as of 2015.9 Employment opportunities exist within the private sector with management, scientific and professional consulting firms.10 Economists deal not only with macroeconomic factors that the flow of the financial universe, but they also work for non-financial companies, often trying to detect and predict the moves of the American consumer. And of course, there’s always Wall Street.

 

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Women in Finance Series: Abby Joseph Cohen
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Women in Finance Series: Abby Joseph Cohen
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There is no denying the existence of a glass ceiling on Wall Street, with numerous studies indicating that women are still underpaid and under-promoted. But that hasn’t stopped Abby Joseph Cohen, who rose through the ranks of Wall Street heavyweight Goldman Sachs, eventually becoming partner and the firm’s Chief Investment Strategist.
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