- Wall Street had one of its best years in trading since the 2008 crisis, but next week’s earnings will show the party already peaked in the second quarter. The five largest U.S. investment banks—JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, and Bank of America—are expected to report about $38 billion in combined equities and fixed income trading revenues for Q3. That sounds strong (13% above last year), but it’s down sharply from the record $47 billion they pulled in during Q2. This isn’t just a seasonal slowdown. Normally, Q3 is slower than Q2 by about 6% because bankers take summer breaks. This year, the decline is expected to be about 20%—more than three times the normal drop. That tells you something shifted fundamentally in September.
- The problem is Asia and bonds. Wall Street bankers warned in September that the record trading gains from earlier this year won’t repeat. Financing trades in Asia pulled back sharply. Fixed income, currencies, and commodities trading—the FICC desk that banks have built up significantly since 2020—is slowing. Both are core to how banks have made money this year. The AI market volatility that spiced up trading activity in Q1 and Q2 faded. Commodity moves that drove revenue in spring are less dramatic now. Interest rate shocks, which benefited trading desks, have stabilized. Jamie Dimon described the Q2 trading environment as “getting close to as good as it gets,” which in hindsight was a warning that it couldn’t get better from there.
- Total bank profits fell too. Even with stronger lending and other businesses, the five banks are expected to report $44 billion in total profits for Q3. That’s up 9% from last year but down 20%—almost $10 billion—from Q2. Investment banking revenue (underwriting and advisory) is following the same pattern as trading: slower than Q2, weaker than expected. The second quarter was peak euphoria with talk of IPOs and M&A acceleration. By September, that enthusiasm had “been dialled down a bit,” according to analysts. The reality is that capital markets slowdown is real.
- Bank stocks are already pricing in the pain. Big bank shares have underperformed the broader market this month because investors are worried about three things: data center financing revenue (the hot business in 2024-2025) might be fading as deals get scarcer; AI agents could eventually disrupt customer relationships and trading volumes; and rising Treasury yields are creating unrealized losses in banks’ securities portfolios. That last one echoes the 2023 regional banking crisis when portfolio losses became a major crisis. Banks have shifted toward shorter-duration debt since then, but investors still remember 2023. That memory is keeping bank stocks depressed even if the actual losses today won’t blow up balance sheets.
What Happened?
Wall Street’s investment banks are expected to report sharply lower trading revenues in third-quarter results next week, marking what analysts forecast as the worst trading quarter of 2026 despite strong year-over-year comparisons. The five largest U.S. investment banks—JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, and Bank of America—are projected to collectively generate approximately $38 billion in equities and fixed income trading revenues, down from a record $47 billion in the second quarter and down roughly 12 percent from the first quarter. The predicted decline of about 20 percent quarter-over-quarter is unusually steep compared to a typical seasonal slowdown of 6 percent during Q3, when banker vacations reduce activity. Total profits for these five banks are expected to reach $44 billion, representing 9 percent year-over-year growth but approximately 20 percent decline from Q2’s $54 billion. Investment banking revenues are expected to follow a similar pattern of weakness. Wall Street bankers from JPMorgan Chase, Bank of America, and Morgan Stanley warned in September that the exceptional trading gains from earlier in the year would not be repeated, citing a pullback in financing trades in Asia and a slowdown in fixed income, currencies, and commodities trading.
Why It Matters?
Peak is when everyone realizes it’s happened, and Wall Street appears to be at that inflection point. The first half of 2026 benefited from multiple one-time boosts: AI-linked market volatility, commodity price swings, interest rate shocks, and strong financing demand from hedge funds and asset managers. Those factors don’t repeat at the same intensity. Once volatility normalizes, once rates stabilize, once Asia market momentum disappears, trading desks lose their edge. Q2’s $47 billion in trading revenue and talk from JPMorgan’s CEO about “as good as it gets” now reads as a peak. What investors worry about most is whether data center financing—the hot business that replaced traditional M&A this year—has already run its course. If infrastructure financing deals slow alongside the broader market slowdown, then next year’s earnings guidance could be disappointing. Portfolio unrealized losses also matter psychologically. Banks have shifted toward shorter-duration debt since the 2023 regional banking crisis, but with 10-year Treasury yields above 5%, longer-duration holdings are underwater on paper. These aren’t balance-sheet threats like 2023, but investors remember the fear from that period.
What’s Next?
Listen carefully to what bankers say about Q4 and 2027. If they guide conservatively on trading revenues and admit that the streak is over, bank stocks could fall further. If they guide optimistically and suggest Q4 could rebound, that’s when the market decides whether to believe them. Watch for data center financing commentary specifically. If bankers say deal flow is strong heading into year-end, that’s bullish for both trading and investment banking. If they acknowledge that pipeline has thinned, expect downward guidance. Track portfolio unrealized losses in the earnings reports. The paper marks don’t affect profits, but large loss disclosures could trigger selling by risk-averse investors remembering 2023. Watch equities trading desk commentary. If equities trading weakness continues into Q4 (versus fixed income expected to rebound modestly), that suggests the AI volatility tailwind is truly over. Monitor M&A pipeline rumors and IPO activity. If capital markets slow further in Q4, next year’s forecasts get slashed. Finally, pay attention to compensation commentary. If banks announce lower bonuses due to trading declines, that signals management expects the slowdown to persist into 2027.
Affected Tickers and Coins: JPM | GS | MS | C | BAC
Source: Financial Times
