74-Year Pessimism Low|Wall Streets Most Profitable Quarter

The Week Americans Gave Up on the Economy

The same week Americans recorded a 74-year low in economic confidence, Goldman Sachs posted its second-highest quarterly revenue in company history. JPMorgan, Morgan Stanley, Bank of America, and Citigroup each set their own records in stock trading revenue. The S&P 500 crossed 7,000 for the first time ever. And the Nasdaq hit a fresh all-time high, according to Investor's Business Daily.

By standard logic, none of that should have happened. The Iran war has closed the Strait of Hormuz for months — what the International Energy Agency's executive director called "the largest energy crisis we have ever faced." Oil crossed $90 a barrel. Europe has, by the IEA's estimate, roughly six weeks of jet fuel remaining before flight cancellations begin. Former Treasury Secretary Henry Paulson publicly warned that a bond market emergency plan may be needed if Treasury demand collapses. Consumer confidence hit lows not seen since 1952.

And yet, as Fortune put it this week: Wall Street is riding high on the coattails of the war in Iran. Main Street feels like it's drowning in it.

Why Banks Profit When the World Burns

This is not a coincidence, and it is not manipulation, whatever social media may suggest. There is a direct causal path.

Wars create volatility. Volatility creates trading volume. Trading volume is Wall Street's raw material. Goldman Sachs, Morgan Stanley, and JPMorgan don't make money by betting on peace — they make money by processing the bets of everyone else. When oil spikes, energy desks are overwhelmed with hedging orders from airlines, shipping companies, and manufacturers. When geopolitical uncertainty spikes, currency desks see record flow as institutions reposition across borders. When rates become unpredictable — and the Fed's Miran acknowledged this week that inflation concerns may push rate cuts further out — fixed income desks generate outsized revenue from the spread between fear and resolution.

This is the first structural piece: volatility is fee income for the intermediaries. The worse the uncertainty, the wider the bid-ask, the larger the commission.

The second piece is more subtle. The K-shaped economy has deepened. Americans without significant financial assets are absorbing the full consumer shock — $4 gas, rising food prices, higher mortgage rates. But Americans with financial assets, specifically equity portfolios, are sitting on all-time highs. The S&P 500's record run means that even if consumer sentiment is at a 74-year floor, asset-holder sentiment and asset-holder wealth are at all-time highs. Wall Street serves the second group.

The third piece is positioning. When the Hormuz blockade began, institutional money rotated sharply — energy stocks, defense contractors, utilities serving data centers. NiSource jumped over 3 percent Thursday alone after signing long-term energy supply agreements with units of Alphabet and Amazon to support data center development in Indiana. That kind of rotation is exactly what trading desks profit from. The war didn't just create volatility in aggregate. It created a specific rotation that happened to benefit the most liquid, most tradeable sectors.

There is one condition that keeps this dynamic intact: the war must remain a volatility event rather than a solvency event. As long as the U.S. financial system itself is not under existential stress — as long as Treasury auctions clear, as long as the dollar holds reserve status — the trading profit engine runs on war-induced uncertainty. The moment the uncertainty crosses into systemic risk, the calculus inverts.

How Long Can the Gap Hold

The weight of evidence points toward continuation, not reversal — but with a specific break condition.

The bull case for Wall Street's outperformance rests on three legs that are still intact. First, AI infrastructure investment has decoupled from geopolitical sentiment. Google committed $5.7 billion in junk bond-backed data center construction this week, the offering drawing $19 billion in orders. CoreWeave sold an additional $1 billion in 2031 bonds the same week — in a market described as otherwise rattled. Capital chasing AI does not pause for Iran. Second, Q1 earnings are broadly beating expectations: Bank of America, Travelers, J.B. Hunt, Abbott Laboratories, PepsiCo, and TSMC all topped estimates. Third, the Fed is on hold but not tightening. That combination — earnings beats plus neutral Fed — is historically enough to sustain equity premium even against consumer despair.

The break condition is bond market stress. Former Treasury Secretary Paulson's public warning about a potential "break the glass" emergency plan for Treasury demand is not a casual observation. The Federal Reserve's Williams signaled this week that rates will remain steady in the face of war risks — but that position assumes inflation stays manageable. If the Hormuz closure extends beyond six weeks and Europe's jet fuel warning becomes reality, freight costs, airline fares, and goods inflation reignite simultaneously. At that point, the Fed faces a genuine stagflation bind: raise to fight inflation, crack equities; hold, and let inflation erode the consumer further. In either branch, the trading volume paradox begins to compress.

The benchmark to watch is the 30-year Treasury yield. It closed Wednesday above 4 percent, which was already enough to push Treasury Secretary Bessent to push back on the rate cut timeline. If the long end breaks above 4.5 percent on sustained volume — not a single session spike — that is the signal that the bond market is beginning to price systemic risk rather than cyclical uncertainty. At that level, the gap between Main Street despair and Wall Street profits becomes politically and structurally unsustainable. Until then, the intermediaries collect.