Wall Street Is Thriving on Chaos — Will It Last?

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2:08We are so excited about this. If you want to come watch the show, go get your tickets starting today at 11 a.m. Eastern at ProfGMarketsTour.com. I'll see you in person. Money markets matter. If money is evil, then that building is hell. The show goes on! The folks in there are watching so soon! Welcome to Property Markets. I'm Ed Elson. It is April 16th. Let's check in on yesterday's market vitals. The S &P 500 hit a fresh record high on hopes for peace talks in the Middle East. The US and Iran may extend the ceasefire another two weeks for more negotiation time. The Nasdaq also climbed while the Dow fell.

2:51Brent crude was roughly flat on the day, hovering around$95 per barrel. And finally, Live Nation shares dropped 6 % after a jury found that Live Nation and Ticketmaster held a monopoly in the events industry. OK, what else is happening? America's biggest banks just had a strong quarter and largely because of the war. Goldman Sachs, JP Morgan, Wells Fargo, Citigroup, Bank of America and Morgan Stanley all reported higher than expected earnings for the first quarter of 2026. And that was fueled largely by an increase in trading volumes due to the volatility related to Iran. Equity's trading revenue alone jumped nearly 27 percent on average across the six firms.

3:34Still, the U.S. financial sector is up less than 3 percent over the past week. In the earnings calls, several of the CEOs struck a notably cautious tone as geopolitical uncertainty lingers. Jamie Dimon warned of, quote, wars, energy price volatility, trade uncertainty, large global fiscal deficits and elevated asset prices. Goldman Sachs CEO David Solomon also pointed out, quote, heightened uncertainty in parts of private credit and the conflict in the Middle East. And Citigroup CEO Jane Fraser warned that, quote, one great first quarter does not a full year make. So here to break down Wall Street's latest earnings from these big banks, we're speaking with Saul Martinez, head of U.S.

4:15financials research at HSBC. Saul, good to see you. Some solid earnings from the big banks this week. But I think the thing that really jumps out to me and I think to investors too is great quarter for trading. And it seems like that was largely a result of this volatility related to the war. what do you make of this first quarter for the big banks? It was a good quarter, as you mentioned. And you had very strong earnings for share growth. The median EPS growth for the seven banks and investment banks that I cover was 23%. Underlying operating trends were good. But as you mentioned, a key takeaway was that you had exceptional results in capital markets businesses.

4:59And if you think about capital markets business, it is good to break them down into two broad buckets. There's the investment banking side where firms work with the clients or corporates and entails advising on M &A and underwriting and raising capital. That was very strong. Also, 29 % year-on-year growth. You mentioned volatility because it's interesting because historically, high volatility has not been good for investment banking, but it has been good for sales and trading. But right now, we're kind of getting, you know, we're hitting on all cylinders where trading results are really strong and benefiting from volatility, but it's not undermining deal making.

5:41And I think a lot of corporates have now come to the conclusion that volatility may be a feature of the system as opposed to a bug and have to continue investing and raising capital and doing deals. Now, on the trading side that you mentioned, yes, the war did help. I do think, though, that trading was already tracking. The markets businesses were already tracking to pretty good results even before the war. On average, I think you had 17 % year-on-year growth overall. And as you mentioned, equities was a particular standout. I think one of the big questions, though, as we head forward, you know, go forward, is how durable these results are, especially in markets.

6:26You know, we've done some research in the recent past where we showed that a lot of the upwards revisions in earnings per share estimates for these banks, especially for Goldman and Morgan Stanley, where consensus earnings per share estimates have gone up over the past 15 months or so by over 20%, the bulk of it has been driven by sales and trading results. And the extent to which they can continue to outperform is, I think, an important question. I think the results likely will continue to be good, but it's going to be hard to continue to grow 20 % off of what are now much more difficult comparatives.

7:07Yeah, this seemed to me, because we were in this situation last year, and I remember it last year quite well, where, you know, the volatility that we were seeing in the markets and the uncertainty that everyone was feeling was mostly a bad thing for most businesses, except for if you're on the other side of those trades, essentially, or if you're facilitating those trades. And so when tariffs happen, when Liberation Day happened, just total volatility, markets going all over the place. and yet it was a great quarter for many of these banks because they were making so much money off of the trading.

7:42And here we are in a similar situation. It seemed as though that was sort of a one-off. But now that it's happened twice, I'm starting to wonder if this is just the market we live in and these are volatile times and sales and trading is now just core to the business at this point. What would you make of that? I think it is core to the business. So, you know, go back a few years, you know, early stages of the pandemic, you had huge increases in sales and trading. And I think a lot of us were saying, OK, well, it's going to go back to what it was pre-pandemic. And it didn't. And it's continued to grow.

8:17So obviously, when you have outsized volatility, that that kickstarts things even further. But the business has changed some. So it's not just, you know, intermediation, which you're talking about, but there's a financing piece of it. things like prime brokerage and where, you know, investment banks are providing loans to hedge funds. That has grown a lot. If you look at the segment disclosures, for example, and you look at, you know, the markets businesses and the size of the balance sheets of these businesses, they are growing quite a bit. And that tends to be a little bit more durable than the intermediation side.

8:56But that has been a significant driver. So these businesses are going to be larger than they have been in the past. And the other thing is that, you know, corporates are being, you know, more active in hedging rate risk. We have positive real rates across the curve. So, you know, there's more opportunities to trade rates, you know, volatility, you know, macro volatility, you know, monetary policy changes. All of these, you know, changes have led to expansionary monetary policy. All of these have created more opportunities for intermediation, even as the financing pieces has grown. I think the question though, from a stock perspective and from the perspective of investing in these stocks is, okay, it's gonna remain much higher than it has been in the past, but can you continue to grow this business and can continue to surprise on the upside?

9:49And that's where I'm a little bit more skeptical. Just slightly shifting to the economy, hear and what we can expect. I mean, one of the nice things about hearing these bank earnings is they have so much data, so many points of light, that they're kind of a good source for understanding what's going to happen. The big question on everyone's minds right now is what is this war going to do to the economy? What is it going to do to gas prices? I mean, we've seen what it's done so far. Hasn't been great. The question then becomes, is it going to get worse? Did we learn anything on that front from these banks?

10:23Perhaps did we learn anything from these executives on their expectations for how the next few months will play out on the economic front? I think there's a cautious optimism about the economy that will and that it'll continue to be resilient. I mean, the general takeaway from management teams is that sentiment is challenged, but the actual numbers are holding in pretty well. And unemployment's really important here, right? As long as people are employed and wages are going up, they're spending. We hear a lot about the two-speed economy and the K-shaped economy. I think, you know, a better way to frame it is an E-shaped economy where, you know, the high end is growing more, spending more than the low end, but there's no delta there's no inflection in terms of the trends right now um there's not a worsening at the low end it's it's kind of stable in terms of spending just just so i understand that you're not seeing a worsening in term in terms of expenditure right now yes okay got it so what i mean is like if you know throwing these making these numbers up a little bit but generally speaking so if the high end is growing 10 percent and low income consumers are growing 2%, the 2 % is not getting worse.

11:41It's staying at a lower level. It's just that there's not a worsening trend at the low end. It's kind of the baseline trend is the same. But credit is good, Ed. Credit quality has been good across consumer, across commercial. Loan growth has picked up a little bit. You know, as I mentioned, corporates, you know, are now thinking volatility is a feature, not a bug. So you're seeing some investments. But yeah, I mean, the economy, you know, we're in a low, higher, low fire type of economy. But, you know, if the thing to watch is unemployment, if unemployment goes up, then that thing, things change.

12:23But up until now, we haven't seen that in the sort of, you know, the baseline economic trends, spend volume growth on debit cards, volume growth on credit cards. It hasn't really changed much. So there's a cautious, there's some caution, as you mentioned, you gave some of the quotes. But, you know, I think most managements are saying like, what we're seeing on the ground isn't really changing much. There was an interesting quote from the JP Morgan CFO, who was asked about this question, like, what are we seeing with consumer spending? How is the war and how are gas prices affecting spending habits among consumers.

12:59And he said, quote, there really is not anything new or interesting to say this quarter. We've looked at it through every angle, and it all looks consistent with prior trends and fundamentally healthy. And it seems like this is the big question that we're all trying to tackle. You would think if gas prices are rising 20, 30 percent, that that's going to be a real problem. But then what we're seeing is that consumer spending is kind of stable-ish. It's not really changing from where it was before. And I guess the big question that I'm asking is like, why is that? Why aren't we seeing a pullback?

13:36Why aren't we seeing a deterioration? Sometimes I think, well, maybe it's just because the top 10 % or the top owners are just buoying the entire thing. But it is very hard to tell. And it does seem important from an economic perspective, because if you do see a pullback in that spending, that could be a real problem for earnings. Well, I mean, you know, one thing about JP Morgan is their client base, especially on the credit card side, tends to be more affluent. So there is that. And it is a proportion of household, I'm not an economist, but it's a proportion of household income, gas is, you know, gasoline is less than what it was, you know, in the 70s and 80s.

14:13So I think it will be interesting when you get some of the consumer finance companies reporting next week, especially those who focus more on who have bigger businesses at the lower end, what they're saying and what they're seeing will be an important, you know, important to consider. But the other thing is, like, we're still pretty early on. I think if gas prices stay, you know, four dollars or wherever they end up at for an extended period of time, does it start to put, you know, more strain on household finances, especially at the lower income level that it has? The other thing, you know, which is mentioned that'll be interesting on this point is tax refunds are tracking ahead of what they were last year.

14:52So that, you know, is putting some more money in the pockets of lower income, especially the lower income. And the predisposition of that income cohort to get to spend additional income tends to be a little bit higher. So, you know, eventually that effect may fade out. But, you know, tracking that and seeing how much is being spent and how much is being saved or used to pay down debt is also an interesting thing to monitor right now. Yeah, we will definitely be tracking that. It's a great point. Okay. Saul Martinez, head of U.S. financials research at HSBC. Saul, always appreciate it. Thank you.

15:27Thanks for having me on. Appreciate it. After the break, Amazon challenges Starlink. And if you're enjoying the show, please follow our new Profit G Markets YouTube channel, The link is in the description.

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18:53We're back with Prof G Markets. Amazon is making a big bet in the satellite race. The company is acquiring telecom company Globalstar for about$11.6 billion, giving its LEO network, formerly known as Project Kuiper, access to satellites, spectrum, and direct-to-device technology. That is the technology that allows satellites to connect straight to phones beyond the reach of cell towers. This deal will help Amazon compete with SpaceX's Starlink, which still has a major lead in scale and service. Amazon also announced a major new customer in Apple. Amazon Leo will power emergency texting features on iPhones and Apple Watches, extending Global Star's existing partnership with Apple.

19:37Amazon gained about 3 % on the news. Global Star surged nearly 10 % on the news. We're here to discuss what this acquisition means and give us kind of a refresher on the satellite industry. We're speaking with Tim Farrer, president of TMF Associates. Tim, thank you for joining me. So what do you make of this deal? And for those who aren't familiar with the telecom world and the world of Starlink and Global Star and all these names, I mean, give us a little bit of a refresher on what this means for the industry? Yeah, I mean, so we went through this round of building out these satellite systems 30 years ago when Global Star first got started.

20:18It and Iridium wanted to sell everyone a satellite phone and they spent billions of dollars to do that and no one really wanted them back then. So now, you know, the last few years, Global Star's been working with Apple to put messaging into every iPhone. This deal shows that other companies are interested as well. We've seen a lot of hype about Starlink with their partnership with T-Mobile. AST is in partnership with AT &T and Verizon. And this is another entry to the market where they're trying to all catch up with Starlink, frankly. What makes satellites better? You mentioned that people didn't really care about satellites 30 years ago when they were building them.

21:00Now, suddenly, satellites are very exciting. All those names. I mean, Starlink, obviously, everyone's very excited about it. AST, which has been one of the best stocks in the market for the past year. What makes satellites so exciting right now? Well, back then, the phones were big and expensive, and people didn't really feel the need to buy an expensive phone for the few times they go outside cellular coverage. Now, this is being put into regular smartphones. and so the idea is that people will use it a lot more because they don't have to buy a separate phone but we still don't really know how much they will use it i mean cellular coverage is pretty good outside of a few national parks and t-mobile has seen probably a lot less usage than they might have expected on their service with starlink now you know these new systems starlink's going to upgrade its satellites.

21:56AST is trying to build out these big satellites. And we don't know what Amazon's going to do, but we assume it's going to be yet more bigger satellites as well. You know, that's going to offer better services. But is that going to cause people to buy these services and pay for them every month? I don't know. I think it's a lot harder to call than it is for like the broadband services that Solink's providing today, where, you know, they've got about 11 million users around the world and it's very much proven as a solution. Direct-to-device is still an unproven market in my book. It sounds like the real differentiators or the reason that satellite might be better than regular broadband cell coverage is that you can use it in, say, a national park and maybe you can use it on a plane.

22:41I mean, basically places where coverage doesn't already exist. Is that understating the what is exciting about it or is that is that really it is that really the differentiator it really is about places where people don't have coverage now it's actually illegal to use your phone on a plane you know most people don't think about it and they use the wi-fi but using it direct to either a satellite or a cell tower is illegal at the moment but out in a national park yeah you don't necessarily have coverage the problem is that these services you know instead of you instead of you communicating with a cell tower that's a mile away you're now communicating with satellites hundreds of miles up in space that means that the service is isn't so good it doesn't work in in buildings and the data rates today you know a few hundred kilobits to a few megabits per second maybe a little bit better with next generation services maybe as much as 10 megabits per second but but still i'm getting hundreds of megabits for a second on my phone, you know, in any sort of urban area around the country, and it worked in building perfectly fine.

23:49So these limitations of the satellite services, you know, are going to offset some of the need for this service out in a national park. You seem quite skeptical and almost bearish on satellite as a network and as a service. Would I be mischaracterizing you there? Or do you think that, I mean, this has been one of the really hot sectors recently, a lot of people really excited about these companies. Do you think that there's too much hype? Well, I think that the broadband service, as I said earlier, has proven itself already. You know, we've got 11 million Starlink users. The good thing about that is, you know, you stick a dish on your roof and it's got a lot of spectrum to use.

24:27It's got a lot of power it can use to get to the satellites. And there's 10 ,000 satellites up there. These directed device satellites, because it's using the same phone that you would be using to communicate with the terrestrial tower, It's never going to have the performance that the terrestrial networks will deliver. And so, yeah, I think that this market is perhaps a little bit overhyped at this point in time. How much of an overlap is there between telecom and space? I mean, this is sort of a distinction. And I wonder if this is part of the reason why the hype is being bucketed together into the satellite systems.

25:02Because when I think of Starlink, I think of rockets. I think of SpaceX launching incredible vehicles, rockets into space. I think the same thing when it comes to this acquisition. I mean, I associate it with Project Leo, which, of course, is the new name for Project Kuiper, which, again, I associate with space launching stuff up into the atmosphere, which gets me all excited. I mean, are these two separate industries that we need to sort of distinguish between a little bit more? Well, the telcos are definitely excited about the possibilities here. I mean, they've struggled really with 5G to develop new services and increase the spend that customers make.

25:44So I think they're always interested in any new opportunity. And like you say, the hype around space may get customers excited. But we still don't know if they're going to pay for it at the end of the day. And, you know, yeah, the limitations of this service. you know i i look back to the 1990s when everyone thought that iridium and global star were going to have tens of millions or hundreds of millions of customers around the world you know they ended up with a few hundred thousand subscribers at the end of the day and went bankrupt and uh you know although the broadband world starlink is is doing great and amazon may well follow suit uh in this director device world we we still don't know and and i i think the uh uh the lessons of Iridium and Global Star from the 90s were that, you know, people didn't want to pay for a service that they didn't use very often and they had to use outside, you know, with a line of sight to the satellite.

26:39You know, people make their calls indoors and they don't want to go out in the rain or the cold or the heat to make a call unless it's an emergency. And then are they going to pay for it every month? What would you say to the people who would point to Starlink and say, this operation is not its own company, really, but this program has millions of users. It's really the bulk of SpaceX's business in a lot of ways, and it's growing really rapidly. What would you say to those people who say, this is a bulk case, this is an industry that's growing and they're succeeding? Oh, no question about that on the broadband side.

27:15Starlink has done an amazing job of ramping up that market, and it's generated, I think the reporting was, 11 billion dollars of revenue last year but you know the reporting on the deal between starlink and t-mobile is that it's it's less than 100 million dollars over the last few years and it's still very small and it's sort of a nascent market so uh yeah we're gonna have to see how it develops uh you know and we're still in a it's still early days here broadband yeah all great and lots of opportunity there director device say the jury's still out and i uh i'm skeptical Just for our listeners, I mean, what actually is the difference between those two things?