Wall Street giants to release financial reports next week: stock trading revenue expected to approach $19 billion, "everyone is a winner" may be a thing of the past

Wall Street’s major banks are expected to maintain strong equities trading performance in the third quarter, but a slowdown in capital markets activity is intensifying divergence in their earnings results.

On October 9, according to analyst estimates compiled by Bloomberg, the five largest U.S. banks are expected to generate a combined $19 billion in equities trading revenue for the third quarter. Goldman Sachs is projected to lead with $5.1 billion, followed by Morgan Stanley, JPMorgan Chase, and Bank of America with estimates of $4.9 billion, $4.5 billion, and $2.6 billion, respectively. Goldman Sachs will be the first to release its earnings next Tuesday.

In contrast, fixed income trading faces pressure, with the five major banks’ revenues projected to fall to the lowest level so far this year. The M&A market is also showing signs of cooling. Meanwhile, concerns are growing that AI-driven cash optimization tools could accelerate deposit outflows, further weighing on bank stocks.

Wells Fargo analyst Mike Mayo stated that while nearly all banks were winners in the first half of the year, this situation may not continue, and the gap in performance among banks is expected to widen further this quarter.

Fixed income trading revenues expected to fall to year-to-date low

Although rising interest rates could increase banks’ loan interest income, they are also putting pressure on trading businesses. Analysts estimate that the five largest U.S. banks’ fixed income trading revenues in the third quarter will exceed $19 billion, down from over $21 billion in the second quarter, potentially reaching the lowest point this year.

Bank of America CEO Brian Moynihan warned in mid-September that the bank’s fixed income trading revenues would decline in the third quarter, which was followed by a sharp drop in share price. Goldman Sachs CEO David Solomon also said during the same period that fixed income trading is underperforming compared to strong equities trading.

Bank of America analyst Ebrahim Poonawala predicts that U.S. capital markets activity in the second half of 2026 will be significantly weaker than in the first half, and raised questions about the sustainability of the current capital markets cycle.

Rising interest rates also cause fluctuations in the book value of some bank-held assets, affecting financial performance through accounting items such as accumulated other comprehensive income. There is some support for debt underwriting: a wave of debt maturities over the next three years will drive demand for refinancing. However, Mayo cautioned that if interest rates continue to rise, demand for bonds may be suppressed.

M&A activity cools, U.S. deal pipeline shows signs of fatigue

Whether capital market activity will continue is a key focus for third quarter earnings reports. Bloomberg data shows that total announced M&A value for the third quarter is down about 10% year-on-year, indicating a slowdown in U.S. deal activity.

The IPO market performed strongly earlier this year, with SpaceX setting a record listing in June. Bloomberg previously reported that Anthropic plans to meet with potential investors next week in preparation for an IPO. However, some IPOs have faced setbacks: Oura postponed its IPO in September, and Bamboo Insurance Services, supported by CVC Capital Partners, also delayed its listing plans.

JPMorgan Chase CEO Jamie Dimon said in an interview on Tuesday that the pipeline for European IPOs and M&A projects is fairly strong, but the U.S. market may have experienced some slowdown in September.

Analysts expect JPMorgan Chase’s investment banking fees to grow 15% year-on-year in the third quarter, with Goldman Sachs up about 8.1% and Morgan Stanley up about 1.9%. Jefferies, the first to report results, showed business divergence: its investment banking and equities trading divisions both posted single-quarter records, but net fixed income trading income dropped 26% year-on-year.

AI-driven deposit outflow worries weigh on bank stocks; analysts say selloff is excessive

In addition to slowing trading activities, potential AI-driven fund flows are also causing investor concern. There is market anxiety that AI-powered cash optimization tools may help companies allocate funds more efficiently, thereby shifting deposits out of traditional banks. The KBW Bank Index posted its worst quarterly performance since the U.S. regional banking crisis in early 2023.

Morgan Stanley analyst Manan Gosalia pointed out that the recent decline in bank stocks reflects multiple concerns, including slowing growth in capital markets revenue, rising financing costs, and the potential for AI cash optimization tools to trigger deposit outflows.

However, he believes the AI investment cycle will last for many years, benefiting not only large cloud computing companies but also providing long-term support for capital markets businesses.

Both Gosalia and Mayo believe that market concerns over AI’s potential impact on the banking industry have been overstated. Despite possible divergence in banks' performance in the third quarter, analysts believe that demand for financing driven by AI investments could continue to support long-term capital markets activity.