The most volatile quarter since the heights of the pandemic has delivered a windfall to Wall Street’s trading desks.
Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. posted equities and fixed-income trading hauls that surpassed analyst estimates for the three months ended Sept. 30. For each firm’s stock traders, it was the best third-quarter on record.
Markets whipsawed in the quarter as investors raced to analyze each new piece of economic data and how it might impact the Federal Reserve’s interest rate trajectory. The S&P 500 Index fell 8.5% — sending the VIX to its highest level since 2020 — only to recover to a record high after the Fed lowered its benchmark rate by 50 basis points.
“This is an environment that’s filled with uncertainty,” Goldman Chief Executive Officer David Solomon said Tuesday on an earnings call. Clients’ “need to constantly be engaging and repositioning and reshaping continues to make them very, very active on a broad global scale.”
The clean sweep of trading beats is welcome news to bank investors, particularly after executives at the biggest firms took turns lowering expectations at an industry conference in September. Goldman’s surprise gain amounted to a reversal of fortunes after Solomon said with just three weeks left in the quarter that trading revenue could fall 10% from a year earlier. The firm’s stock-trading unit went on to log revenue of $3.5 billion, its best performance since the first quarter of 2021.
And Bank of America posted a 12% increase in revenue from trading equities, fixed income, currencies and commodities — after CEO Brian Moynihan telegraphed a more modest gain in the low single digits last month. Jim DeMare, who leads the bank’s markets division, pointed to the “favorable investment environment for equities” amid the heightened volumes.
Citigroup Chief Financial Officer Mark Mason attributed its surge in stock-trading revenue in part to gains across index and single-stock desks. The firm also saw a bump in both programmatic and high-touch trading activity, he said.
Morgan Stanley is set to report its third-quarter earnings Wednesday. Analysts are expecting a 2.2% jump in trading revenue, with gains in equities more than offsetting a drop in fixed income. Morgan Stanley was long the biggest stock-trading shop on Wall Street, but has ceded the title to Goldman in recent years.
Outside of trading, the banks also notched investment-banking hauls that surpassed analyst estimates, and net interest income largely came in above expectations. It all adds up to a heady earnings season for the biggest US lenders — welcome news for investors who had worried that the Fed’s rate cuts would sap profits.
Still, even as executives described optimism around the Fed’s ability to engineer a soft landing, they warned of lingering uncertainties that could impact that trajectory. JPMorgan CEO Jamie Dimon put it bluntly on Friday after the bank beat expectations across most metrics: “I’ve been quite clear that I think the future could be quite turbulent.”
This article was provided by Bloomberg News.