Finance
Banks are thriving so far in Trump’s economy. Here’s what that means
(L-R) Brian Moynihan, Chairman and CEO of Bank of America; Jamie Dimon, Chairman and CEO of JPMorgan Chase; and Jane Fraser, CEO of Citigroup; testify during a Senate Banking Committee hearing at the Hart Senate Office Building in Washington, D.C., on Dec. 6, 2023.
Saul Loeb | Afp | Getty Images
Nearly everywhere you look in the world of finance, things are going surprisingly well — at least for now.
Wall Street is humming thanks to a boom in stock and bond trading and a pickup in corporations acquiring competitors and taking out massive loans. At the same time, Main Street is holding up as the American consumer continues to spend, borrow and repay loans, according to reports this week from the largest U.S. banks.
It makes for an unusually profitable environment for financial firms. The six biggest U.S. banks generated about $39 billion in second-quarter profit, outstripping analysts’ expectations and collectively jumping more than 20% from core earnings a year ago.
It’s a remarkable result after a tumultuous start to the quarter. The period began with shock and plunging markets on April 2 over President Donald Trump’s sweeping “Liberation Day” tariffs. JPMorgan Chase economists said at the time that the policies would probably cause a recession this year.
But markets roared back after Trump responded to distress signals coming from U.S. bonds and delayed the most punishing tariffs on most trading partners. Investors have begun to tune out the administration’s barrage of tariff pronouncements as bluster or noise, and corporate leaders are stepping off the sidelines to pull off multibillion-dollar transactions, bank results show.
“Look how far the world’s come in three months,” Wells Fargo banking analyst Mike Mayo told CNBC. “Throughout the quarter, you had a pickup in investment banking, loan growth and optimism with economic scenarios. Here we are, with talk of a recession pretty much absent.”
That dynamic was clear at JPMorgan, the largest and most profitable U.S. bank. It produced about $15 billion in quarterly profit, which is nearly as much as the next three largest banks combined.
Trading benefited from turbulent conditions in the quarter as Trump roiled markets with rapidly evolving policy statements. But the real surprise came from investment banking, which involves mergers advice, IPOs and debt and equity issuance. Revenue at JPMorgan jumped 7%, producing $450 million more than analysts had expected, just weeks after managers had warned of an approximate 15% decline.
“The pickup in investment banking fees, to some extent, reflects people accepting uncertainty and deciding to move on with transactions,” JPMorgan CFO Jeremy Barnum told reporters on Tuesday. “The corporate community has sort of accepted that they just need to navigate through this.”
‘Soft landing’
But the good news didn’t end with corporate confidence. JPMorgan’s internal barometers for U.S. economic risks cooled down from the first quarter as some of the worst-case scenarios were taken off the table, Barnum said.
That means it’s less likely that a recession will cause a spike in U.S. unemployment this year, hurting consumers ability to repay their debts. That was clear in the bank’s provision for credit losses, which was 14% smaller than in the first quarter.
The economy is squarely in the “soft landing” scenario, Barnum told reporters this week.
At the same time, consumers and companies are borrowing more money from JPMorgan, where loan growth rose 5% compared with a year ago, fueled by rising credit card and wholesale loans, the bank said.
Those stats mean that, at least for now, banks are giving the all-clear signal on the U.S. economy in the early months of the second Trump presidency. Even in a time marked by turbulence and rising geopolitical risks, the economy has defied expectations for a downturn.
“Banks are economically sensitive businesses, and so how the economy performs under the administration is going to matter to their results,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual wealth management. “So far, the economy continues to push forward.”
‘Firing on all cylinders’
The situation even made JPMorgan CEO Jamie Dimon, who frequently warns about risks he sees, sound relatively optimistic about the economy.
“It’s been resilient, and hopefully it’ll continue to be,” Dimon told reporters this week. “It’s always good to hope for the best, prepare for not the best, and we’ll see… One thing I would point out, the world is much bigger and much more diversified” now and that makes for a “slightly more stable global economy than you had 20 years ago,” he said.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 17, 2025.
Brendan McDermid | Reuters
Trump’s sweeping spending bill, signed into law this month, preserves corporate tax rates and expands business deductions. On top of that, deregulatory efforts across industries will boost the economy, Dimon said.
Last month, the Federal Reserve released a proposal to amend the capital that banks need to hold for lower-risk assets, potentially freeing up billions of dollars for the banks that they could use to boost share repurchases, buy competitors or fuel more loan growth, executives said this week.
Taken together, it’s hard to conceive of a better setup for banks than right now, Barnum said.
“We’re essentially firing on all cylinders,” Barnum told analysts. “Rates are a good level for us. Deal activity is high. Capital markets are very strong. Consumer credit is excellent. Wholesale credit is excellent.”
To be sure, sentiment can shift on a dime, and risks including inflation, the mounting U.S. deficit and geopolitical turmoil are still out there, Barnum noted.
Good times ahead?
Even the banking industry’s former laggards are showing signs of a resurgence.
Wells Fargo CEO Charlie Scharf, fresh off finally removing the yoke of a Federal Reserve punishment that capped his bank’s balance sheet at 2017 levels, sounded ebullient during an earnings call this week. His company recently gave all its employees a $2,000 bonus to celebrate the milestone.
“This is an incredibly interesting and fun time,” Scharf told analysts Tuesday. “We’re starting to see deposit flows, as we’ve talked about. We’ve got new account growth. We’ve got expenses in check. Credit is performing well… We have less constraints.”
Citigroup shares have outpaced most financial stocks this year.
The shares of another former laggard, Citigroup, have climbed nearly 30% this year as CEO Jane Fraser convinces investors her turnaround plan is working.
Fraser this week sounded like a CEO on the attack, disclosing the bank’s new luxury credit card and plans to issue a Citi-branded stablecoin. She also marveled at the resiliency of the U.S. economy.
“The strength of the U.S. economy, driven by the American entrepreneur and a healthy consumer, has certainly been exceeding expectations,” Fraser told analysts. “As I’ve been speaking to CEOs, I have yet again been impressed by the adaptability of our private sector.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
Sign up for our weekly newsletter that goes beyond the livestream, offering a closer look at the trends and figures shaping the ETF market.
New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
What that means for consumer loans
Checks and Balance newsletter: Of God and MAGA
Why software stocks, 2026’s market dogs, have joined the rally
Armanino adds Strategic Accounting Outsourced Solutions
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
