Riding the Rollercoaster: Equities Desks Profit from Trade Turbulence

In a surprising twist, the stock market’s turbulent ride, largely fueled by ongoing trade policy uncertainties stemming from President Trump’s administration, has proven to be a lucrative period for the equities trading desks of major U.S. banks. while sectors like hedge funds and mergers and acquisitions are feeling the pinch, these financial institutions are adeptly navigating the volatility and turning it into ample profits.

JPMorgan Chase & Co. is a prime exmaple. According to sources familiar with the matter, the banking behemoth is “on track to boost revenue from equities trading by more than 30% this quarter from a year earlier.” Should this remarkable trajectory hold, JPMorgan is poised to surpass its previous record of $3.3 billion, set four years prior. The bank’s success underscores the ability of established players to thrive amidst uncertainty.

The Big Three: JPMorgan, Goldman Sachs, and Morgan Stanley

This favorable trend is not unique to JPMorgan. Its main competitors, Goldman sachs group Inc. and Morgan Stanley, are also expected to reap significant benefits from the increased market activity. For years, these three have dominated the stock-trading business, and 2024 was no exception, with the trio collectively amassing nearly $36 billion from their equities divisions.

While JPMorgan’s anticipated 30% surge is particularly notable, insiders suggest that Goldman Sachs’s equities unit is also performing ahead of its Q1 pace from last year, when it recorded $3.3 billion. This suggests that broader market dynamics are benefiting a select group of financial institutions.Though, representatives for JPMorgan and Goldman Sachs declined to comment on these figures.

the Downside: Hedge Funds and Dealmakers Feel the Squeeze

The success of bank equities desks contrasts sharply with the struggles faced by other players in the financial sector. While banks profit, uncertainty is having negative impacts elsewhere. Multistrategy hedge funds, designed to perform well nonetheless of market conditions, are faltering. Major players like Ken Griffin’s Citadel and Izzy Englander’s Millennium Management reportedly “posted rare losses in February and slumped further in early march.”

The M&A landscape is also feeling the effects of ongoing policy uncertainty. Many dealmakers, anticipating a surge in activity following Trump’s return to the White House, are now expressing concerns about the “uncertainty created by sudden tariff proclamations.” This hesitance is reflected in the data. The volume of newly announced transactions globally is currently lower than it was at the beginning of 2024,signaling a slowdown in dealmaking activity.

Dan Simkowitz,Co-President of Morgan Stanley,highlighted this point at a recent conference hosted by his bank. He noted that merger and acquisition announcements and new equity issuance are “certainly on pause” as clients take time to assess the potential impacts of the current administration’s policies.

The Evolution of Equities Trading: From Risk-Taking to Client Facilitation

The resilience of equities desks in the face of market turmoil is a testament to their evolution since the 2008 financial crisis. No longer reliant on risky proprietary trading strategies, these desks now primarily focus on facilitating client trading activity. This shift towards client-focused service has allowed them to capitalize on the heightened trading volumes driven by market volatility. “Their earnings hinge less on taking risks with their balance sheets and more on facilitating surges in client trading in response to price swings,” as one analyst explained.

Individual stock movements, often triggered by policy announcements or geopolitical events, are unleashing bursts of derivatives trading, further boosting bank revenues. in essence, the very uncertainty that is causing headaches for some is creating opportunities for others.

Looking Ahead: Navigating uncertainty and Potential Policy Shifts

The current landscape highlights the complex interplay between trade policy,market volatility,and the financial sector. While some segments are thriving, others are struggling to adapt. The long-term implications of the current habitat remain uncertain,but the ability to adapt and capitalize on market swings will likely be the key to success in the years to come.

One potential counterargument to the rosy picture painted for bank equities desks is that this volatility is ultimately unsustainable.While they are currently profiting from the increased trading volumes,prolonged uncertainty could eventually lead to a decline in investor confidence and a broader economic slowdown.Additionally, new regulations or policy shifts could impact their ability to operate in the same manner.