Big US banks hit a soft patch in late September, and the wobble is showing up in their third-quarter results. JPMorgan and Wells Fargo both told investors that a jump in bond yields and choppier markets slowed dealmaking and cooled trading in interest-rate products, even as their equity desks stayed busy.
The news comes after a strong first half of the year, when banks benefited from a steady stream of mergers, IPOs, and bond issuance. But the final weeks of September brought a sharp bond selloff that pushed the benchmark 10-year Treasury yield up quickly, making day-to-day rate moves harder to predict. For banks, that volatility is a double-edged sword: it can boost trading revenue, but it can also make clients hesitant to strike deals or take on new positions.
What the banks said
JPMorgan, the largest US bank by assets, said the uncertain economic outlook and market volatility weighed on its investment banking and bond trading businesses. Wells Fargo's chief financial officer, Mike Santomassimo, said client activity "slow[ed]" as the quarter wound down, echoing the same theme.
Neither bank reported a collapse—just a more mixed picture than the first half of the year. Equity trading, by contrast, remained strong, suggesting that investors were still active in stocks even as they pulled back from bonds and dealmaking.
The comments align with what JPMorgan's profit miss hinted at earlier: deal fees and bond trading are cooling off. Wells Fargo, meanwhile, has been navigating its own challenges, including a Federal Reserve cap on its growth, though loan growth helped lift its third-quarter profit.
Why bond yields matter
For everyday investors, the 10-year Treasury yield is a key number to watch. It's the benchmark for borrowing costs across the economy—affecting mortgages, auto loans, and corporate debt. When yields rise quickly, it often signals that investors expect higher inflation or stronger growth, but it can also mean the market is repricing risk.
In September, the yield jumped as investors digested a mix of economic data and central bank signals. That kind of fast move makes it harder for companies to price new bond issues or for bankers to advise on mergers and acquisitions, because the cost of financing can change day to day.
The broader backdrop is one of market jitters over AI and chip competition, which have pushed yields lower at times, but the late-September bond selloff was a reminder that rates can move quickly in either direction.
What it means for investors
For investors holding bank stocks, the message is that the easy money from a busy dealmaking environment may be fading. Banks are cyclical businesses—they thrive when the economy is growing and markets are calm, but they feel the pinch when volatility rises and clients pull back.
That doesn't mean the sector is in trouble. JPMorgan and Wells Fargo remain highly profitable, and their equity trading desks are still humming. But the mixed quarter is a signal that the second half of 2024 may not match the first half's momentum.
For the broader market, the banks' comments are a useful barometer. When big banks say dealmaking is slowing, it often reflects a wider caution among corporate leaders. That caution can ripple into hiring, capital spending, and ultimately economic growth.
Investors will be watching to see whether the soft patch is a temporary blip or the start of a longer slowdown. The next few months of economic data—especially inflation and jobs reports—will likely determine whether bond markets settle down or stay jumpy.
In the meantime, the takeaway is simple: even the biggest banks aren't immune to market swings. For everyday investors, that's a reminder to keep a diversified portfolio and not to overreact to any single quarter's results.
