Wall Street's largest banks are entering the third-quarter 2026 earnings season with a mix of challenges and opportunities. After a strong first half of 2026, driven by elevated trading volumes and robust corporate financing demand, these institutions now face a sharply different interest-rate environment. A rise in US Treasury yields has sparked concerns about whether the revenue growth that supported earlier profits can be sustained.
Analysts expect profits at major banks like JPMorgan Chase, Goldman Sachs, Citigroup, Wells Fargo, Bank of America, and Morgan Stanley to decline sequentially from the second quarter, though most are forecast to report higher earnings than a year earlier. Exceptions include Bank of America and Morgan Stanley. The cost of capital is increasing, which could slow down financial activity and reduce the market value of existing fixed-income portfolios.
The banking sector has underperformed broader market trends, with the KBW Bank Index falling about 13% from its August peak. A Truist Securities survey found that only 35% of institutional investors now expect banking stocks to outperform the market, down from 68% in July. The speed of interest-rate adjustments is a key concern, as abrupt changes can create financial pressure before institutions and borrowers can adapt.
Equities trading remains strong, with the five largest banks projected to report combined stock-trading revenue approaching $19 billion for Q3. Goldman Sachs is expected to lead with $5.1 billion, followed by Morgan Stanley at $4.9 billion. However, fixed-income markets have shown signs of weakness, with revenue under greater pressure than equities trading. The divergence marks a shift from the first half of 2026, when banks benefited from simultaneous strength across equities and fixed-income desks.
Higher borrowing costs are also affecting corporate transactions, including mergers and acquisitions, IPOs, and debt financing. Bank of America has warned of a potential 10% drop in investment banking fees, while JPMorgan Chase expects mid-to-high teen percentage increases in investment banking fees and trading revenue. Morgan Stanley reports continued strength in its investment banking pipeline, partly due to corporate investment in artificial intelligence.
Investors will scrutinize upcoming earnings reports for signs that higher interest rates are impacting business activity beyond trading portfolios. Management guidance for the fourth quarter will be crucial, given concerns that rising borrowing costs could weaken lending, investment banking, and trading revenue before year-end.