Market turmoil has led to better-than-expected earnings from large banks and brokers, with trading revenue surging 21-27% compared to the prior quarter. Goldman Sachs reported its highest quarterly revenue ever, despite a 8% decline in investment banking revenue.
The benefits of wider bid-offer spreads and more trading volume have contributed to this growth. Larger banks tend to provide more capital for hedge funds, exposing them to significant risks if these funds fail due to extreme volatility.
Meanwhile, market sentiment is currently at “risk off” levels, with the Sentimentrader Risk On/Risk Off indicator indicating a period of aggressive selling. Historically, declines in this indicator have been associated with volatile periods in the market.
However, high volatility may actually be beneficial for markets in the long term, as data shows that spikes above 50 on the VIX index have consistently produced positive returns over the next 1-5 years. The transports sector, which is likely to be impacted by tariffs, remains oversold and could benefit from a sustained economy.
As investors look to manage risk, experts emphasize the importance of ignoring bearish noise and keeping an open mind to potential opportunities. With better buying opportunities on the horizon, it’s essential to focus on long-term success rather than short-term gains.
Source: https://realinvestmentadvice.com/resources/blog/volatility-boosts-bank-bottom-lines