Wall Street’s largest banks entered the second half of 2026 after one of their most profitable six-month streaks in at least a decade. Then interest rates skyrocketed. When JPMorgan Chase (JPM), Goldman Sachs (GS) and Citigroup (C) release their third-quarter results on Tuesday, followed by Bank of America (BAC) and Morgan Stanley (MS) on Wednesday, investors will look for clues about whether the sharp rise in interest rates is starting to derail the first-half boom. These giants’ profits should fall from last quarter as their revenue from trading, deals and financing is expected to retreat from the levels that fueled the standout second-quarter results, according to analyst estimates compiled by Bloomberg. Still, most are expected to show their profits increased from a year ago, with Bank of America and Morgan Stanley expected to be the exceptions. “Right now, you look out the window and you feel good. I think it’s more about the risks than what’s happening outside the window,” said Brendan Coughlin, president of regional lender Citizens Financial Group (CFG), which will report late next week. The mood among investors has already soured. Collectively, these five banks have lost about $270 billion in market value from their respective summer highs through Friday’s close, even as the S&P 500 (^GSPC) is still up about 14% this year. “Much of the recent poor performance of banks is due to the dramatic rise in long-term rates,” UBS analyst Erika Najarian recently told clients. A Truist Securities survey earlier this month found that only 35% of institutional investors expect bank stocks to outperform the broader market, down from 68% in July and 82% in December. The key focus for investors next week will be less on what higher borrowing costs mean for third-quarter earnings than on whether the rapid revaluation of money will begin to undermine the unusually strong activity that defined the first half of 2026. Higher rates may initially lift banks’ lending income, but they also raise deposit and wholesale funding costs, put pressure on bond portfolios and complicate the math for dealmakers. The speed of rate movement also adds concern. Macquarie strategists noted this week that many of the highest-profile financial explosions in the past 50 years occurred shortly after sharp moves in long-term bond yields. The trading results are expected to provide the most immediate evidence of a Wall Street slowdown. In September, banking executives announced weaker activity, particularly in fixed income, compared to the frenzy that broke out this spring. JPMorgan is among the big Wall Street banks that will report results next week. (Reuters/Eduardo Muñoz/File Photo) · Reuters / REUTERS Higher financing costs also raise the stakes on whether the momentum of this year’s investment banking boom can continue into 2027. Several companies, including smart ring maker Oura, have postponed their plans to go public, citing market conditions. In a sign that even AI-related companies were facing a bigger capital hurdle, Nvidia-backed Firmus Grid abruptly shelved its plans to go public this week after investors balked at its proposed valuation. Global M&A announcements also slowed sharply during the third quarter. But caution hasn’t eliminated the opportunity Wall Street sees to finance AI development, which could lead to years of debt, equity and advisory work for banks. “Yes, the interest rate environment is not helping, but as a boardroom theme, M&A has not slowed down,” Guillermo Baygual, Citigroup’s global co-head of M&A, told Yahoo Finance earlier this week. A separate issue at all banks is whether executives indicate that deposits and other financing costs will pressure credit margins. The Federal Reserve raised its benchmark policy rate last month amid already fierce competition among U.S. lenders to attract more cash from customers. “Loan growth is easier to find than deposit growth, so it’s putting pressure on deposit dynamics to raise funds,” Citizens’ Coughlin said. David Hollerith covers a range of developments across the financial sector, from Wall Street to banking and asset management to cryptocurrencies and fintech. Email him at david.hollerith@yahoofinance.com. Follow him on X at @DsHollers. Click here for an in-depth analysis of the latest stock market news and events influencing stock prices. Read the latest financial and business news from Yahoo Finance.
