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. The bank released a considerable list of reasons pressuring 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.
Jamie Dimon, the bank’s chief executive, said in a statement that “large fiscal deficits, sticky inflation, elevated asset prices, rising interest rates and geopolitical conditions” presented challenges to an otherwise strong economy.
In a phone call with reporters Tuesday morning, he warned of trouble ahead if the Federal Reserve continues to raise interest rates, saying that ”the next 1 percent will be more painful.”
Revenue at another big bank, 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).
JPMorgan and Wells Fargo stocks vacillated between slightly down and flat in premarket trading early Tuesday.
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.
Rival Goldman Sachs managed this choppy environment more adeptly in the third quarter, with its profit rising 29 percent from a year earlier and revenue climbing 23 percent, vastly exceeding analysts estimates.
Goldman’s results were bolstered by the lucrative fees it earned off leading the underwriting of this summer’s blockbuster SpaceX initial public offering, and from its stock trading business.
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 intently focused on whether this week’s updates would reveal cracks in the broader economy.
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 on Tuesday morning, “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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