UK-based global banking giant HSBC said Tuesday that the outlook for a trio of Wall Street’s top banks looks as cloudy as a London fog — but without the delicious notes of Earl Grey in steamed milk and vanilla syrup.

The bank downgraded JPMorgan Chase, Goldman Sachs and Bank of America. What’s brewing is a classic case of macroeconomic uncertainty coupled with HSBC’s suspicion that the upside for America’s world-leading banking sector may already be priced into the shares of its top lenders.

The Price of Optimism

The US banking industry delivered a solid first quarter, bringing in $70.6 billion in profit, amounting to a 5.8% increase from the fourth quarter of 2024, according to the Federal Deposit Insurance Corporation. From January through March, JPMorgan, Goldman Sachs and BofA surpassed estimates with profits of $14.6 billion, $4.7 billion and $7.4 billion, respectively.

Despite blowing expectations out of the water, CEOs struck a cautious tone, especially as investment banking, in the words of Goldman chief David Solomon, yielded “more muted activity relative to the levels we had expected coming into the year.” Additional downsides included potential tariffs and trade wars — which reared their heads again this week, with the US announcing plans to place levies on imports from countries around the world beginning August 1. Those may be coupled with, in the words of JPMorgan chief Jamie Dimon, “ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility.”

Wall Street stocks did indeed take a bruising, along with the rest of the S&P 500, from the White House’s April 2 Liberation Day tariff announcement, but JPMorgan and BofA have gained 40% since their April nadir and Goldman has surged 50%. Investors found cause for optimism from their strong financial reports, the US administration’s plans to ease regulatory hurdles, and most recently, Wall Street sailing through stress tests in late June. A seeming relaxation of trade conflicts, now in doubt, didn’t hurt either. HSBC, however, isn’t sure the trend can continue and is concerned the stocks might have been buoyed by excessive optimism and require a reality check:

• “The share prices of the universal banks and brokers we cover have, on average, risen 35% over the past three months,” the bank wrote in a note. “Ultimately, we think downside risks associated with still-elevated macro uncertainty, potentially slowing economic growth, and more interest rate cuts through 2025 and 2026 are generally not factored into the stock prices of universal banks and brokers.”
• HSBC downgraded JPMorgan and Goldman Sachs from “hold” to “reduce” and Bank of America from “buy” to “hold.” While noting there are legitimate causes for optimism — like improving investment banking activity, sound credit quality and an increasingly favorable regulatory approach in Washington — the bank cautioned that these may already be priced into Wall Street shares.

Sooner Than Later: HSBC’s view is not gospel, as some analysts remain bullish on the banking sector. And the KBW Bank Index was on an 11-day winning streak until tumbling in the last two days as tariff talk ramped up — JPMorgan and BofA fell 3.1% on Tuesday, while Goldman fell 1.9%. Either way, earnings season is imminent, with most major lenders set to report next week, when we’ll see whether it’s the bulls or bears among the analysts who feast.

Wall Street is learning what was already known to people who move to Florida only to end up hating the humidity and the big bugs: The grass is always greener on the other side.

Case in point: Analysts at both Goldman Sachs and Bank of America this week have become the latest to raise their end-of-year target forecasts for the S&P 500. Consider it a sign that the great rotation out of US equities earlier this year amid trade war fears may have been an overcorrection.

Party in the USA

While the so-called TACO Trade may be the hottest acronym on Wall Street and in financial publications this year, a much more storied — and somewhat related — trader acronym is back in fashion, too: TINA. That’s “There Is No Alternative [to US equities],” for the uninitiated. The TINA trade has nonetheless hit some snags in recent years, with bonds looking like a pretty swell alternative in an era of high interest rates. But this year’s trade war has made the bond market a bit yippy, to borrow a phrase. Meanwhile, talk of the end of American Exceptionalism, as evidenced by a turn toward Europe and elsewhere, may have been slightly exaggerated. As the trade war simmered, the S&P 500’s monthly traded value in June ($2.3 trillion) more than tripled that of the Stoxx Europe 600 index ($600 billion), according to a recent Bloomberg analysis, as the index rose to a record high.

Last month, Goldman Sachs chief US equity strategist David Kostin even declared the “TINA trade remains alive and well” — driven by retirement accounts and retail trading, as US households on an epic dip-buying spree have committed a record 49% of their financial assets this year to equities. The bank’s upgraded year-end outlook, published late Monday and followed by a similar revision at BofA the next day, adds to a choir of increasingly upbeat voices:

• BofA raised its forecast from 5,600 to 6,300, while Goldman’s target increased from 6,100 to 6,600; Citigroup, Barclays and Deutsche Bank raised their outlooks in June. Most major brokerages dropped their year-end projections to below 6,000 following April’s Liberation Day trade-war rumblings.
• In its note, Goldman cited recent inflation data and corporate surveys that showed less tariff pass-through than expected, as well as the likelihood of interest rate cuts to come.

Made From Pure Concentrate: June’s market rally and the return of the TINA trade have not, exactly, been all that kumbaya in practice — a possible tell that the enthusiasm may now be running a little hot. At least that’s the thesis of a recent study from analysts at Bloomberg Intelligence, who found that just 10% of stocks on the S&P 500 are powering the index’s returns since its April lows, well down from the 22% average from 2010 to 2024. Meanwhile, the S&P 500 Equal Weight Index hasn’t hit a record high since November. Analysts at Oppenheimer & Co. are registering similar concerns, recently telling Bloomberg: “Broader participation is important. Rallies with most stocks participating, both large and small, are the rallies that typically continue.”

With a pot this large, it’s no wonder we’re seeing so much action.

As details trickle in on bids for the three available New York City casino licenses, one thing is becoming clear: Just about every bidding player projects a massive payout on the other side of winning the regulatory green light, according to a Bloomberg report on Tuesday.

Flush Draw

Applications for a casino license were due to the New York State Gaming Facility Location Board last week, and the process was a doozy. According to a New York Times report, paperwork from one of the eight bidders — including everything from bank references to tax returns — ran more than 50,000 pages (for the sake of the trees, we hope it was submitted as a PDF). The bids also included proposals for locations across the entire city: One group backed by Mets-owner Steve Cohen wants to build a casino next to Citi Field in Queens, Bally’s has a bid for a casino at Ferry Point in the Bronx, another group wants a casino on Coney Island and Caesars is pushing for one in Times Square.

Bidders are projecting substantial winnings, regardless of location, though (unsurprisingly), Manhattan could yield the largest score. For now, bidders will be counting their chips until the Gaming Board makes a final call in December:

• One bid for a location in Manhattan’s Freedom Plaza projects $2.2 billion in revenue in its first year of operation, which would rise to $4.2 billion annually in a decade. Caesars, which promises an opportunity for “historic tax revenue,” projects $23.3 billion in gambling revenue alone over 10 years.
• A study by consultants at Spectrum Gaming Group found that a Manhattan casino could generate $2.1 billion per year in gambling revenue, higher than in other boroughs. Cohen’s group, however, projects $3.9 billion in annual revenue within three years in Queens.

Coin Flip: If the lofty projections are achieved, it would place a hypothetical New York casino among the most lucrative resorts in the world. However, Bloomberg notes that Bally’s failed to meet its lofty projections when opening its “temporary” casino in Chicago two years ago (a permanent location is under construction and is slated to open next year). Meanwhile, data from the Office of the New York State Comptroller shows that four casinos in upstate New York have similarly missed revenue projections. As seasoned poker players know, it’s best never to count your money when you’re sitting at the table.