Wall Street enjoys blowout earnings while Washington takes the blame

Wall Street firms are celebrating this week. And not simply due to their impressive quarterly profits.

They are also reveling over the fact that investors finally have somebody else to blame for the market’s madness.

Stocks soared Monday morning due to a tariff rollback for the technology industry revealed late Friday. The Trump administration's latest trade policy shift, this time excusing some computer hardware and chips from import levies, jumpstarted shares of Apple and Dell, as well as semiconductor stocks like Nvidia and Micron.

Washington’s reprieve for Apple and others that manufacture many of their products in China remains tenuous, however. In a social media post on Sunday, President Trump stressed that “NOBODY is getting ‘off the hook’” on tariffs despite Friday’s actions.

Not that Wall Street banks are not enjoying the confusion coming out of Washington. Bank earnings have been boffo in the past week thanks to traders’ ability to capitalize on the market’s wild swings, lifting financial shares markedly higher.

Goldman Sachs (Ticker: GS) stock jumped Monday after it became the latest investment bank to announce Street-beating results. Goldman said its equity-trading revenue rose 27 percent percent from a year earlier to $4.19 billion for the first three months of the year.

Goldman joined peers JPMorgan (Ticker: JPM) and Morgan Stanley (Ticker: MS) who reported huge quarters last week thanks to surging trading revenue. Morgan Stanley, for example, saw its trading revenue surge 45 percent thanks to the rise in stock and bond volatility.

Despite seeing their earnings soar and their shares move higher, Wall Street’s chieftains remained restrained in their jubilation, however. In their commentary following their quarterly victories, the bank bosses intentially stayed subdued.

JPMorgan CEO Jamie Dimon, for one, warned Friday that the economy faces "considerable turbulence," adding that, "we continue to believe it is prudent to maintain excess capital and ample liquidity in this environment." The bank also set aside 75 percent more provisions to cover future loan losses.

That’s not exactly a bullish sentiment coming from a bank CEO who just posted earnings of $14.64 billion, up 9 percent from the year-ago quarter.

And while it’s likely not surprising for retail investors to see Wall Street traders padding their pockets at their own financial – and emotional - expense, this most recent period of extreme market turbulence has indeed proven to be different from previous ones. Or at least the most recent ones.

You see, unlike the Great Financial Crisis of 2008-2009, dotcom bubble of the late 1990s or the Long-Term Capital Crisis of 1998, the current craziness on Wall Street is not of its own creation. It’s coming from over 200 miles away in Washington.       

Aaron Leak, founder of ECL Private Wealth Management, points out that in most periods of market turmoil, investors instinctively look to Wall Street for answers and often, blame. While any kind of uncertainty causes market volatility, this time feels very different, according to Leak.

“From the dotcom bust to the housing crisis and even the collapse of Long-Term Capital Management, financial excess and leverage have historically been the culprits behind market volatility. It’s not risk taking on Wall Street causing concern, it’s the policy gridlock and uncertainty coming out of Washington,” Leak said.

Not that he’s making “knee jerk moves” in response to the President’s tariff policies, but he is having deeper conversations about resilience.

“We are looking at sectors and strategies that may be more insulated from political swings, emphasizing diversification, and considering more flexible or defensive positions where it makes sense,” Leak said.

Still, the idea that the origin of all this uncertainty is political, not financial, remains a strange one to Leak.

“Historically, Washington’s role in market disruptions has been more reactive than causative. But today, fiscal policy, regulation, and political standoffs are often leading indicators of volatility. That inversion should encourage investors to think more holistically not just about markets and interest rates, but about political cycles, legislative timelines, and how deeply intertwined government and the economy have become,” Leak said.

Along similar lines, James "Louie" Humphries, managing partner at Mindset Wealth Management, agrees that this isn’t market risk in the “traditional sense.” He views it as “political theater” influencing price action. And he’s also capitalizing on it for clients, much the way Wall Street’s trading desks are.

Humphries said he is not chasing every headline but is “tilting tactically” when opportunities arise. He said he focuses on strategies that benefit from elevated risk premiums and manages around that with strict discipline.  

“The irony here is that Wall Street isn’t the cause of the turbulence—it’s Washington. We’re used to risk coming from leverage, bubbles, or asset mispricing. Now, it’s coming from policy improvisation. The market may not like it, but for us, it’s not unfamiliar territory,” Humphries said. 

Finally, Ryan Johnson, founder and financial planner at Hundred Financial Planning, doesn’t really see much of a difference at all where the uncertainty originates from. Whether its Washington or Wall Street, it’s always going to be there.

“I work with clients in their 30s and 40s, and one of the first conversations we always have is about how uncertainty is just part of the deal. Sometimes it shows up as tariffs. Other times it's elections, interest rates, or something else entirely. But it’s always there,” Johnson said.

Added Johnson: “This means we’re often just coming back to the plan we built, rather than trying to build portfolios around what Washington might do next. We save what we can, invest with a decades-long view, and try to stay focused on what we can control, not the noise.”