Wall Street Takes In Record Haul, Projecting US Economic Health

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It’s only July, but Tuesday made a case for bears to go into hibernation.

Five of the largest US banks reported a combined $49 billion in second-quarter profits, led by a record $21 billion at JPMorgan Chase. Great things were expected from the Wall Street lenders, but more crucially, executives reported strength on Main Street and in the broader economy, which bodes especially well for the rest of the quarterly earnings season.

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Expect Record Bonuses

They are numbers to brag about. In addition to JPMorgan‘s $21 billion haul, up 41% year over year, Goldman Sachs‘ profit jumped 78% to $6.6 billion during the bank’s best quarter in five years. Citigroup’s profit climbed 45% to $5.8 billion, Bank of America’s gained 27% to $9.1 billion and Wells Fargo’s increased 17% to $6.4 billion.

Two forces drove the mammoth results. First, trading desk revenue benefited from heightened stock trading around Iran War-related volatility. For example, Citi’s revenue from equities trading surged 45% to a company record of $2.3 billion. Second, investment banking revenue was fueled by major deals including the IPOs of SpaceX and chip designer Cerebras, as well as Alphabet’s $85 billion share sale. But equally, if not more, important were the banks’ upbeat readings of the American consumer:

• Revenue at JPMorgan’s consumer banking division rose 8% to $20.3 billion, reflecting the strength of the US economy. Spending on credit cards at BofA, which added 1 million new credit card accounts during the quarter, rose 9% to $266 billion.

• “Consumer spending is higher, charge-offs and delinquencies are lower, and savings and investments are growing across consumer segments,” said Wells CEO Charlie Scharf. “Concerns around affordability and inflation exist, but the labor market and wage growth remain strong.” His firm’s consumer banking revenue rose 8% to $7.3 billion.

All Things Must Pass: The Invesco KBW Bank ETF, which is weighted toward big banks, has climbed 14% this year, but some investors worry that the conditions favoring lenders today have all but maxed out. Oppenheimer analysts, who acknowledged there is “nothing on the fundamentals that strikes us as particularly worrying at present,” nevertheless advised bank shareholders last month to cash out, “take the money and run.” Similarly, JPMorgan CEO Jamie Dimon cautioned Tuesday that the record paydays won’t last forever: “It’s getting close to as good as it gets,” he said. “We just don’t know how long it’s going to last.”

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