Cboe flags light Columbus Day trading as bank earnings and inflation data loom

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Columbus Day trading muted

Highlights

US stock trading slowed on Columbus Day, with the Dow up 0.38%, S&P 500 flat, and Nasdaq down 0.44% as Micron fell 3%.
Bank of America projects Q3 investment banking fees at $1.6–$1.8 billion, down 14.3%–23.8% from Q2's $2.1 billion, citing weaker IPOs.
Implied moves in major bank options for Tuesday's earnings are near 3%–4%, with notable activity in Goldman Sachs, Wells Fargo, Citigroup, and JPMorgan Chase.

Bank earnings and data drive the near-term outlook

As reported by Cboe Global Markets, the bond market is closed for Columbus Day alongside government offices, many businesses and most schools, a backdrop that typically leads to a slower and lower-volume trading session.

The three main U.S. stock indexes move unevenly during the session. The Dow Jones Industrial Average rises 0.38%, the S&P 500 Index is little changed, and the Nasdaq Composite falls 0.44%, with Micron shares down 3%.

Attention now turns to September inflation figures, with the Consumer Price Index due Wednesday and the Producer Price Index due Thursday. Even so, the main focus for traders is earnings season, which begins Tuesday with major banks reporting results and offering guidance on credit quality, loan growth, delinquencies, corporate dealmaking and broader market conditions.

Wall Street expects solid results from large lenders, but comparisons may be demanding after strong second-quarter performance. That raises the risk that simply matching expectations is received negatively by investors.

Investment banking trends and options activity in focus

Bank commentary is also likely to reflect a mixed backdrop for investment banking. Mergers and acquisitions remain relatively robust, but initial public offerings are softer, with some companies, including OpenAI, choosing to stay private until next year.

That matters because IPO underwriting fees are a significant revenue source for banks. Cboe notes that Bank of America says its broader investment banking fees are tracking 14.3% to 23.8% lower in the third quarter, at an estimated $1.6 billion to $1.8 billion, down from $2.1 billion in the second quarter.

Higher Treasury yields and an interest rate hike are also shaping expectations for the sector. Rising yields can initially support net interest income, but they also pressure long-term fixed-income mortgage portfolios and can reduce loan demand.

In options markets, implied moves for major banks reporting Tuesday are around 3% to 4%, with notable activity in Goldman Sachs, Wells Fargo, Citigroup and JPMorgan Chase contracts. Outside the banking sector, unusual options activity in Oracle and Broadcom calls suggests some traders still expect upside in those shares despite weakness in the Nasdaq.

Major U.S. banks’ third-quarter earnings outlook has improved as analysts raised profit estimates for several financial stocks, led by Goldman Sachs and Morgan Stanley. Our earlier coverage highlighted sharp upward revisions to consensus EPS and pointed to key catalysts investors were watching, including deal activity, capital-markets performance, and the impact of higher bond yields on lending and M&A. The piece also noted that results from other large lenders could help confirm whether the more constructive sentiment toward the sector is likely to carry into next year.

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