Wall Street’s largest investment banks are expected to report a significant slowdown in trading revenues in their upcoming third-quarter results, signaling a potential end to a remarkable run of strong performance in the business. Analysts project that JPMorgan Chase, Goldman Sachs, Morgan Stanley, Citigroup, and Bank of America will generate approximately $38 billion in equities and fixed income trading revenue collectively, according to industry data. Although this figure remains about 13 percent above the same period last year, it represents a marked decline from the record $47 billion posted in the second quarter and a nearly 12 percent drop from the first quarter.

The trading units of major U.S. banks have thrived since 2020 after years of relatively subdued activity throughout the 2010s. This resurgence has been driven in part by increased financing of trades for hedge funds and asset managers amid heightened market volatility tied to the emergence of artificial intelligence, shifting commodity prices, and fluctuating interest rates. JPMorgan CEO Jamie Dimon previously characterized the equities trading environment as “getting close to as good as it gets.”

However, executives from Bank of America, JPMorgan, and Morgan Stanley have recently cautioned that these elevated levels of trading revenue are unlikely to continue. Challenges cited include a reduction in financing activity in Asia and a slowdown in fixed income, currencies, and commodities trading. The third quarter typically experiences a seasonal lull due to the summer holiday period for bankers, yet this year’s expected drop is anticipated to be unusually steep. Barclays analyst Jason Goldberg forecasts a 20 percent decline between the second and third quarters, compared with an average seasonal decrease of around 6 percent.

Alongside trading revenues, the banks are expected to report total profits near $44 billion for the quarter, representing an increase of almost 9 percent year-over-year but a 20 percent decline from the previous quarter. Investment banking revenues are also predicted to follow a similar downward trajectory. RBC senior analyst Gerard Cassidy noted that while there had been optimism earlier in the year about a growth in initial public offerings and mergers and acquisitions, that enthusiasm has softened heading into the third quarter.

Bank stocks have underperformed the broader market recently amid concerns over the potential fading of revenues from data center financing, competitive pressures from artificial intelligence applications, and the impact of rising interest rates on bank securities portfolios. Analysts anticipate that banks will face unrealized losses on these portfolios as yields on 10-year U.S. Treasury bonds continue to climb. While these marks won’t directly affect profits, they may weigh on banks' capital positions. Following stresses revealed during the 2023 regional banking crisis, many institutions have shifted investments toward short-term debt to mitigate exposure to price fluctuations in longer-duration securities.