Markets are a little too calm, at least as far as Wall Street is concerned.
Bankers had already warned in recent weeks that revenue from bond and stock trading would be lower than the strong first quarter and compare less favorably to the second quarter last year, when markets were jolted by the United Kingdom's vote to leave the European Union. There wasn't any such excitement this year to stoke the volatility needed to boost trading.
"This quarter, conversely, can be characterized by a lack of idiosyncratic events," said Marianne Lake, JPMorgan's chief financial officer, on a conference call with analysts Friday morning, according to a transcript by FactSet. The bank's revenue from fixed-income trading fell 19 percent from last year, and 24 percent from the first quarter. For the year through June, fixed-income trading revenue is down 2 percent.
Stock trading wasn't robust, either. JPMorgan said revenue in that business was down 1 percent from last year's second quarter and this year's first quarter. It's up about 1 percent for the year. At Citigroup, equity trading fell 11 percent, reflecting "episodic activity in the prior year period, as well as low volatility in the current quarter."
The expectations aren't high for other big banks due to report later this month, including Goldman Sachs, Morgan Stanley and Bank of America, whose CEO said last month that trading revenue was likely to be lower than last year.
Trading once propelled Wall Street's big banks to big profits, but the business has taken a hit from increased regulation and market forces driving profit lower.
Low volatility is a culprit, too. The CBOE Volatility Index, otherwise known as Wall Street's "fear gauge," is near decade-old lows and doesn't seem ready to reverse course. The Federal Reserve is sticking to its plan to gradually raise rates, and uncertainty about how much of President Donald Trump's agenda will get done hasn't stopped markets from rallying.
"While it wouldn't be herculean to suggest volatility rises a bit from here, barring anything that comes out of left field, we don't envision a strong advance," said Bryan Reilly, a senior investment analyst at CIBC Atlantic Trust.
A broad shift by investors away from actively managed funds to passive, index strategies is exacerbating the problem, Reilly says, by reducing the amount of portfolio turnover that would give bank trading desks something to do.
Last year's strong third quarter isn't going to make comparisons to this year easy, either.
For JPMorgan, the third quarter of 2016 was a blowout, with about $1 billion more in trading revenue than the average of the previous five years. "I'd like to remind you third quarter of 2016 market revenue was also a record since 2010," Lake told analysts on Friday. "So while that isn't guidance, it is context as this quarter has felt quite more like prior years."
Glenn Schorr, an analyst at Evercore ISI, said he has factored the comparison with last year's big numbers into his estimates for the rest of the year but notes "trading has a tendency to turn on a dime."
The environment is complacent, he said in telephone interview. "If everyone feels the market is not too hot, not too cold" and there's not a lot of volatility "that makes trading not great."
Wall Street banks react to weakness in various business lines by adjusting the amount of money they set aside for compensation. At JPMorgan's investment bank, compensation expense in the second quarter was down 12 percent from the first quarter.
But what does it matter, anyway? JPMorgan's CEO Jamie Dimon expressed frustration that the media and the public focus too much on the short-term. On a conference call with reporters Friday morning he reacted to a question about the bond market. "Who cares about fixed income trading in the last two weeks of June, honestly?"