Stubborn inflation and rising interest rates this year have taken their toll on everything from housing sales to the cost of internet shipping.
And now they are beginning to weigh down parts of Wall Street.
On Tuesday, JPMorgan Chase, the nation’s largest bank and one whose finances are closely watched as proxy for the economy at large, reported surprisingly insipid earnings results, by its own standards at least.
JPMorgan earned $15.3 billion in profit, falling short of analysts’ expectations that it would exceed $16 billion. That’s a meaningful shortfall, given how tightly banks massage the public narratives around their finances, and how easily they have made money hand over fist in recent years.
The past few weeks have introduced new complications to the banking business. The Federal Reserve’s interest rate increase sent bond prices falling, which contributed to an unexpected drop in JPMorgan’s debt trading revenue. The bond turmoil also led to investment losses for another large bank, Wells Fargo.
Yet, other banks managed to navigate the choppy environment deftly. Goldman Sachs said its profit rose 29 percent from a year earlier and revenue climbed 23 percent, vastly exceeding analysts’ estimates. Its monster results were bolstered by the lucrative fees it earned off the underwriting of this summer’s blockbuster SpaceX initial public offering, and from related euphoria in its stock trading business. Citi, too, made a mountain off equities trading in the third quarter.
Wall Street’s mixed quarterly results follow one of the industry’s most profitable stretches ever, as the banks rode a roaring stock market and a recent borrowing binge to finance the aggressive expansion of A.I. infrastructure.
In recent weeks, some banks had warned that their third-quarter results would not be able to keep up with the blistering pace they had set earlier in the year, and analysts have been intensely focused on whether this week’s updates would reveal cracks in the broader economy.
In a call with Wall Street analysts on Tuesday, JPMorgan’s chief executive, Jamie Dimon, dusted off an old analogy to describe the environment, comparing it to “an accordion” that “can open and close pretty quick.”
“We just don’t know,” he said.
His bank released a considerable list of pressures on its business, including unexpectedly lower winnings from fixed income and commodities trading, a slowdown in debt deals and a need to sock away more money for potential losses in the future.
Mr. Dimon said in an accompanying statement that “large fiscal deficits, sticky inflation, elevated asset prices, rising interest rates and geopolitical conditions” loomed ahead.
In a phone call with reporters Tuesday morning, he warned of trouble ahead if the Federal Reserve continued to raise interest rates, saying that “the next 1 percent will be more painful.”
Recent projections by Fed officials show that most expect one more quarter-point increase in rates by the end of the year. Many also forecast that rates could go even higher next year.
Revenue at Wells Fargo, also fell narrowly short of what Wall Street analysts expected. The bank was able to keep its profits in line with expectations by clamping down on expenses (Wells Fargo has been at the forefront of banks using artificial intelligence to lay off employees).
Rising interest rates can be a complicated factor for banks. On one hand, they permit lenders to earn more on the interest from deposits because they are able to charge more when the Federal Reserve raises its base line rate.
On the flip side, rising rates can weigh on economic activity overall and the recent volatility in the bond market can be difficult for a bank’s trading desk to manage profitably.
Wells Fargo on Tuesday struck an optimistic note about the U.S. consumer. The bank said that loan delinquencies were low and that its deposit balances continued to rise. It flagged “strong positive forces such as the investment in A.I. infrastructure, high employment levels and consistent wage growth.”
Mike Santomassimo, Wells Fargo’s chief financial officer, told reporters in a conference call, “We are not seeing any signs that would leave us to believe anything is changing and that’s true across all the wealth and income cohorts across our client base.”
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