Wall Street’s record trading run is showing signs of losing momentum, with major US banks warning that the exceptional revenue growth recorded in the second quarter is unlikely to be repeated in the current quarter.
Executives from some of America’s largest banks have lowered their expectations for third-quarter trading performance, pointing to a slowdown after a period of unusually strong activity driven by sharp movements in artificial intelligence-related stocks, semiconductor companies and major market events.
Bank of America Chief Executive Brian Moynihan said the bank expected its sales and trading revenue in the third quarter to be broadly flat compared with the same period last year. His comments triggered a significant decline in the bank’s shares and also weighed on other major US financial stocks.
Other banks have offered more positive forecasts, although their projections still point to a substantial slowdown from the pace recorded in the previous quarter. JPMorgan Chase expects trading revenue to grow in the high teens year on year, while Citigroup is projecting a mid-single-digit increase for its markets business.
The contrast between the banks highlights how uneven the cooling has been across Wall Street. Morgan Stanley Co-President Daniel Simkowitz described the second quarter as exceptional for markets and said the third quarter was unlikely to match that performance. JPMorgan executive Doug Petno also pointed to a seasonal decline following a record quarter.
The second quarter provided an unusually strong boost to the trading businesses of major US banks. Combined equities trading revenue at JPMorgan, Goldman Sachs, Citigroup and Bank of America increased by 72 per cent from a year earlier to about $19.3 billion.
Heavy activity in AI-related shares, semiconductor stocks and the highly anticipated SpaceX initial public offering contributed to sharp market movements, giving trading desks greater opportunities to generate revenue.
Some of those conditions have since moderated. Bank of America has reported weaker financing activity in Asia, including a pullback in prime brokerage, which involves providing financing and other services to hedge funds, trading firms and family offices.
Goldman Sachs, meanwhile, continues to see strong activity in equities, although Chief Executive David Solomon expects revenue from fixed income, currencies and commodities to be somewhat softer.
Despite the slowdown, bank executives are not signalling an end to the broader trading opportunity. JPMorgan has pointed to stronger demand for prime brokerage and structured financing as areas that could continue supporting markets businesses.
The current forecasts therefore suggest a cooling rather than a collapse in Wall Street trading activity. The extraordinary volatility and market turnover that produced record results in the second quarter have become harder to sustain, leaving banks facing tougher comparisons in the months ahead.
The next major test will come when the banks release their third-quarter earnings next month. Those results will provide a clearer indication of whether the slowdown is temporary or represents a more sustained change in the trading environment.
For investors and financial institutions, the development is significant because trading revenue has become an important source of earnings during periods of heightened market activity. A prolonged reduction in volatility or transaction volumes could put pressure on banks that benefited heavily from the recent boom.
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