Welcome to the Trading Floor: War Is Good, Actually
Welcome to the Trading Floor: War Is Good, Actually
TO: Anyone still pretending this is complicated
FROM: The quarterly earnings reports
RE: Q1 2026
Let's dispense with the hand-wringing.
Morgan Stanley just posted $20.6 billion in revenue for a single quarter. First time the firm has ever crossed that threshold. EPS of $3.43 against expectations of $3.02. ROTCE of 27.1% — one of the strongest in the bank's history. Goldman Sachs ran $17.23 billion in revenue, EPS of $17.55, equities desk at a record $5.33 billion, investment banking fees up 48% year-on-year. JPMorgan reported markets revenue of $11.6 billion — also a record. Stock-trading records were set at Goldman, JPMorgan, Bank of America, and Citigroup simultaneously, in the same quarter.
The engine behind all of it, stated plainly in the filings and barely dressed up in the earnings calls, is the Iran war. Volatility creates flow. Flow creates fees. Hedging demand explodes when tankers are getting seized in the Strait of Hormuz. Every pension fund, sovereign wealth manager, and corporate treasurer in the world needed to reposition their energy exposure starting February. Wall Street was the toll booth.
There's nothing new about this. Read the history. The firm that figured out structured finance for munitions procurement in 1914 posted extraordinary returns. The houses that intermediated petrodollar recycling after 1973 made generational fortunes. The banks that ran derivatives books during Gulf War I, the Iraq invasion, every major conflict that disrupted commodity markets — they had exceptional quarters. The mechanism is boringly consistent: uncertainty creates transaction demand, and transaction demand flows through capital markets infrastructure. Morgan Stanley and Goldman Sachs are not actors in the geopolitical drama. They are the venue.
What's slightly different this time is the scale and the transparency. These are not modest outperformances. Morgan Stanley crossed $20 billion in a quarter. Goldman's equities desk set a record. The war has been, in the framing of one publication covering these results, the most lucrative event in Wall Street's recent history. That's not hyperbole — the numbers justify it. And yet the tone in the earnings calls remained appropriately solemn. David Solomon noted that the geopolitical landscape is "very complex" and that "disciplined risk management must remain core." Jamie Dimon said persistent inflation and geopolitical tensions make the long-term outlook harder to navigate. Ted Pick delivered record revenues and a 27.1% ROTCE and reminded shareholders that strong execution drives results.
None of this is dishonest, exactly. But it requires a particular talent — perfected over many decades in these institutions — for holding two things simultaneously: the genuine operational pride of having run a tight quarter, and the quiet awareness that the operational excellence was powered by a war in which thousands of people have died and global energy markets have been structurally disrupted for months.
The bifurcation this earnings season has revealed is worth sitting with. Goldman and Morgan Stanley set records while the IMF cut its global growth forecast to 3.1%. American Airlines slashed its earnings outlook because oil is eating its margin alive. Honeywell missed revenue and guided poorly for Q2. ServiceNow, despite a 22% subscription revenue increase, got eviscerated because Middle East government procurement has frozen. The big banks made extraordinary money precisely because the conditions that are grinding on everyone else — volatility, uncertainty, repositioning pressure, currency dislocations — are the raw material of their business.
This is the iron logic of financial intermediation in a crisis. Main Street pays the energy tax. Wall Street clips the hedging coupon.
The Financial Stability Board issued its warning in the same period: the conflict is creating significant instability, stretched valuations, high leverage in non-bank financial players, liquidity mismatches. The FSB is right to flag these. The banks themselves know the risk. Their CEOs are not stupid people, and their risk management teams run the scenarios. The Q1 2026 record revenues came with a caveat, visible between every line of every 8-K: this is a conflict-driven spike, and conflict-driven spikes have resolution functions that can run in any direction.
The 10-year Treasury is at 4.25%. That's up more than 20 basis points since the conflict began — a war premium sitting in the risk-free rate that affects everything from mortgage costs to corporate refinancing. The hedge funds bought a record $86 billion in equities over five sessions as markets rallied on ceasefire optimism. They could add another $70 billion if momentum holds, per Goldman's own positioning data. The systematic funds are long volatility outcomes even as they buy the dip. That is a structurally unstable configuration, and everyone with a serious risk desk knows it.
History suggests what happens next, and history is not comforting. The pattern from 1973, from 1990, from 2003: the initial volatility spike benefits financial intermediaries enormously. Then one of three things happens. Either the conflict resolves cleanly, volatility compresses, and the record quarters are a one-time gift that reprices the earnings trajectory downward. Or the conflict escalates, liquidity tightens, the war premium in Treasuries becomes structural, and the same banks that posted records in Q1 spend the back half of the year marking down credit books. Or the conflict grinds into a ceasefire stalemate — which is roughly where we are now, with Trump ordering the Navy to shoot mine-laying boats and Iran's negotiators resigning from talks — in which case oil stays elevated, growth stays suppressed, and the IMF's 3.1% forecast starts looking optimistic.
None of these scenarios are as good for Goldman as Q1 was.
The market knows this, at some level. Goldman shares fell almost 2% on the day it reported its second-best quarter in history. Morgan Stanley got a 5% pop and has since given some of it back. The stocks are not priced as if the record quarters will repeat. They're priced as if the market understands perfectly well what generated the numbers, and how replicable that generator is.
Which brings us to the uncomfortable sentence nobody in the earnings calls wanted to say directly: Q1 2026 was exceptional for Wall Street because a war started. The war continues but is losing its volatility premium as it becomes the baseline. The next exceptional quarter requires either resolution — which compresses the war premium — or escalation — which creates a different and much less profitable kind of chaos.
The memo writes itself.
April 26, 2026