Banks on Wall Street benefited greatly from the explosion of trading during the pandemic, with the support of the Federal Reserve Fund pumping huge funds into the financial markets, and with the central bank approaching the beginning of the phase of reducing asset purchases, banks are gearing up for new profits as the increased volatility in the markets encourages customers to buy and sell more stocks and bonds. Read more [Goldman Sachs Easily Beats Analyst Expectations].
The Federal Reserve has been buying government bonds since March 2020, adding $4 trillion to its budget as part of the emergency response to the COVID-19 outbreak, and the strategy was designed to make financial markets more stable and ensure that companies and other borrowers have access to an adequate amount of capital. This strategy actually worked, but it led to unprecedented levels of financial liquidity, which helped stock and bond traders enjoy the most profitable periods since the financial crisis in September 2007.
The five largest Wall Street investment banks — JPMorgan Chase, Goldman Sachs, Bank of America, Morgan Stanley and Citigroup — collected about $51 billion more in trading revenue over the past year and the first three quarters of 2021 compared to the same periods before the pandemic. Read more [Bank of America Exceeds Asset Management Result Expectations] and [Morgan Stanley Releases Results That Exceed Expectations].
Giant trading volumes, along with a global deal-making boom, have also helped banks outperform their broader index, with the KBW Bank Index up 40% year-to-date, with the S&P 500 growing by 19%.
It is expected that the banks with the largest trading volumes will collect profits again after the Federal Reserve begins withdrawing financial stimulus, which will prompt investors to reorganize their investment portfolios, and the results of the largest US banks during the third quarter showed a strong performance in stock trading due to the fact that many stocks reached record levels, but the bond markets are calm.