JPMorgan, Goldman Kick Off Bank Earnings with Equities Stealing the Show

As we shared on Monday, the big banks are the first stop on our tour through the September-quarter earnings season, and this morning JPMorgan Chase (JPM) and Goldman Sachs (GS) got things started. Let’s review what those two said when it comes to trading and deal activity, how the consumer is holding up, and what these firms are saying about AI adoption and usage inside their own walls.

JPMorgan

In JPMorgan’s (JPM) trading revenue, it was a tale of two desks. Fixed income revenue slipped 4%, with weaker commodities, rates and credit largely offset by currencies and emerging markets. Equities, on the other hand, jumped 49% on the back of Prime and derivatives The base case for the fourth quarter trading is for a normal seasonal decline given the November and December holidays, but CEO Jamie Dimon quipped that, with so much going on in the world, that decline may not happen. We agree with Dimon that the probability of markets remaining volatile is high, especially depending on if there is a re-escalation between the U.S. and Iran.

JPMorgan’s Investment Banking fees rose 14%, led by advisory. That said, the interest rate led market sell-off caused buyers and sellers to pause in the second half of September as they reset valuation expectations. You’ll recall this was one of our concerns when we closed out the Portfolio’s position in Neostellar (NSLR) shares. Dimon described the firm’s investment banking pipeline as “fine” but like an accordion that can open and close quickly, with U.S. deals delayed while Europe looks quite healthy, especially for IPOs.

Turning to the consumer, debit and credit card spending rose 10% year over year, with momentum across categories including gas and travel. Card net charge-off guidance held at roughly 3.2%, and consumer deposits grew 4% as JPMorgan added roughly 650,000 net new checking accounts. Management called the consumer “very healthy,” thanks largely to a solid labor market. Here’s the thing, though: management noted that if the Fed has to keep real rates high long enough to cool inflation, that almost by definition means higher unemployment and weaker consumer credit. Middle-market companies are also showing some caution as they contend with higher rates, input costs and diesel.

On AI, JPMorgan pegged its annual AI spend at roughly $700 million but said the figure is dated and increasingly hard to isolate since AI is now spread across the firm. Management did mention early productivity wins in software engineering “increasingly exciting,” pointing to experiments rewriting legacy tools in a matter of weeks. To manage token costs, the bank runs proprietary, open-weight and open-source models, some in its own data centers, and is adding model routing so not every query goes to the most expensive model.

As for guidance, JPMorgan expects fourth-quarter net interest income of about $28 billion and offered a 2027 central case of roughly $107 billion excluding the Markets business. That outlook assumes one Fed hike in December and two more in the first half of 2027.

Goldman Sachs

Goldman’s (GS) equities revenue rose 72% to $6.4 billion with trading revenue up 52% on derivatives, while financing revenue soared 96% to a record on elevated prime balances and strong activity in Asia. Fixed income was flat, as weaker mortgages, rates and credit offset strength in currencies and commodities. Per management, demand for equities financing still exceeds industry capacity, and financing now accounts for more than 40% of Goldman’s combined trading revenue, which it argues makes the business more durable.

The firm’s Advisory revenue hit a record $1.7 billion, up 18%, and Goldman remains the No. 1 M&A adviser with $1.5 trillion of announced deals year to date. Equity underwriting rose 43% on IPOs and secondary offerings, while debt underwriting rose 15% on investment-grade issuance. Per CEO David Solomon, the investment banking backlog remains “very robust”, placing it in his view as a top quartile environment. While that suggests a level of robustness, it’s a step down from the top decile environment he noted in May and June.

Solomon also shared that some September IPOs were held back when valuations came in 10% to 15% below expectations. Private equity sponsors have been slower than expected to sell older holdings, mainly because those assets are still marked above where they can be sold. Goldman sees that pent-up activity as a coming tailwind and said companies aren’t waiting on the midterms to pursue deals. That suggests we are likely to see more M&A activity in the coming weeks, while in our view the market continues to look to Anthropic’s IPO for more on the IPO market window.

Goldman said far less than JPMorgan about AI inside its own walls, offering no spending or productivity figures. It pointed to continued investment in data infrastructure, cloud migration, AI models and engineering talent, and said it should need less headcount-driven expense to grow than in the past. Most of its AI commentary focused on financing the build-out. Solomon cited estimates that U.S. data centers could require more than $10 trillion through 2032 and said demand for compute exceeds supply.

Looking ahead, Goldman expects incentive fees to stay elevated in the fourth quarter and now sees roughly $150 billion of alternatives fundraising this year, double the low end of its original $75 billion to $100 billion target.

Connecting dots to Morgan Stanley and Bank of America

With our own Morgan Stanley (MS) and Bank of America (BAC) on deck, here’s what Tuesday’s reports tell us to expect and what we’ll be listening for.

The biggest read-through is in equities. Equities revenue jumped 49% at JPMorgan and 72% at Goldman, with prime brokerage, financing and derivatives doing the heavy lifting. JPMorgan agreed client demand is “insatiable,” and Goldman said demand for equities financing exceeds industry capacity. Given the size of Morgan Stanley’s equities franchise, odds are it enjoyed a similarly strong quarter. The flip side is fixed income, which was flat to down at both firms on weaker rates and credit, so we’d expect that to be the softer spot.

Investment banking should also be a positive. Advisory was a record at Goldman and the driver at JPMorgan, equity underwriting rose 43% at Goldman on IPOs and secondary offerings, and Goldman called its backlog “very robust.” That said, both firms flagged a September slowdown after the rate sell-off, and Goldman noted some IPOs were held back on valuation. We’ll want Morgan Stanley’s read on its own pipeline, the IPO calendar heading into year-end and whether private equity sponsors are finally starting to sell older holdings.

In wealth management, Goldman’s 12% annualized wealth net inflows and JPMorgan’s 15% growth in client investment assets point to a healthy backdrop for asset gathering, which is core to Morgan Stanley’s Wealth Management arm. Net new assets and fee-based flows will be the barometer to watch, along with any update on how Morgan Stanley is using AI to make its advisors more productive.

As it relates to Bank of America, the consumer read-through from JPMorgan is encouraging. Card spending rose 10%, card charge-offs are holding steady, and management called the consumer “very healthy” thanks to a solid labor market. That bodes well for Bank of America’s card and consumer banking results. Let’s remember, though, that JPMorgan warned a prolonged period of high rates would likely mean higher unemployment and weaker credit, so we’ll be listening for any early signs of strain in Bank of America’s credit metrics.

On net interest income, JPMorgan expects to benefit from the rate hikes priced into the forward curve but also flagged that higher rates could push depositors from checking and savings into CDs, raising deposit costs. We’ll want to see how Bank of America balances those two forces in its own outlook, and how its deposit growth is holding up.

In markets, JPMorgan’s soft fixed income results are worth keeping in mind since that is a bigger piece of Bank of America’s trading business, while the equities strength should help. JPMorgan’s comment that middle-market companies are turning more cautious on rates, input costs and diesel is also relevant to Bank of America’s commercial banking business.

Finally, AI. As we mentioned on Monday, Bank of America likes to share its productivity-versus-headcount figures and how it’s leaning into technology. After JPMorgan said AI benefits aren’t yet visible in its results and Goldman offered no specifics, Bank of America has a chance to put real numbers on AI usage, and that’s exactly what we’ll be listening for.

We’ll take in what Morgan Stanley and Bank of America have to say and share our updated thoughts with you and what that means for our MS and BAC positions.

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At the time of publication, TheStreet Pro was long BAC and MS.