When the river warms, the ducks are the first to know! Wall Street issues a warning: "The trading frenzy" is losing momentum

Wall Street banking executives have collectively issued a warning: the trading frenzy that drove record profits in the second quarter is cooling, and the high growth momentum in market businesses is getting harder to sustain.

This week, executives from major US banks consecutively lowered their forward guidance at an industry conference. Bank of America CEO Brian Moynihan was the first to comment, stating that the bank expects third-quarter sales and trading revenues to be "flat." Following the news, Bank of America's share price plunged 5% that day, dragging other bank stocks down as well. JPMorgan and Citigroup gave relatively optimistic forecasts, but growth has clearly slowed compared to the explosive increase in the second quarter.

These statements mark an inflection point in the performance cycle of Wall Street trading businesses. Investors betting that bank stocks will continue to benefit from market volatility will need to reassess their positions.

Second Quarter: An "Exceptionally Strong" Quarter

In the second quarter of this year, Wall Street trading businesses achieved historic records. The combined equity trading revenues of JPMorgan, Goldman Sachs, Citigroup, and Bank of America soared by 72% year-on-year, reaching $19.3 billion.

Behind this boom were multiple driving factors: investors fervently bought up AI-related stocks, there was a speculative wave in the Asian semiconductor sector, and the mega-scale IPO of SpaceX triggered intense market volatility. Together, these elements generated extraordinary trading activity.

Daniel Simkowitz, Co-President of Morgan Stanley, was forthright: "The market performance in the second quarter was exceptional. To be clear, the third quarter will not be a repeat of the second."

Third Quarter: Diverging Growth, but a General Slowdown

Although banks differ in their outlooks for the third quarter, a consensus has formed around slower growth.

Doug Petno, Co-President of JPMorgan, forecast that after a record-setting quarter, market business revenues will experience a "seasonal sequential decline," but the bank still guides for third-quarter trading revenues to grow "by double digits" year-on-year. Citigroup predicts its markets division will achieve mid-single-digit percentage growth.

By comparison, Bank of America's expectation of "flat" results is the most conservative. Brian Moynihan pointed out that financing activity in Asia has noticeably cooled, and the region's prime brokerage business—lending services to hedge funds, trading companies, and family offices—has seen a clear pullback.

Goldman Sachs CEO David Solomon said that the bank's equities business "remains very strong," but revenues from fixed income, currencies, and commodities will "soften slightly." Over the past week, Goldman Sachs’ share price has fallen by about 7%.

Structural Demand Remains, Long-Term Logic Unchanged

Despite short-term pressure on growth rates, Wall Street executives broadly emphasize that the long-term structural opportunities in market businesses have not disappeared.

JPMorgan's Petno highlighted a "significant increase" in demand for prime brokerage and structured finance, and believes this trend "will last for quite a long time."

Goldman Sachs’ Solomon endorsed the market outlook from a more macro perspective: "If you believe that the market capitalization in the US and even globally will compound at some rate over the next decade, then the space in which we provide financing to clients will also compound at a similar pace." He simultaneously acknowledged that growth will not be linear.

Major Wall Street banks will release their third-quarter earnings reports—for the period ending in September—starting next month, at which point the actual performance of the trading businesses will be tested.