Wall Street is booming. Surging yields could shake things up

Wall Street rolled into 2026 on a hot streak and continued with a booming first half. Profits surged, fueled by massive spending on artificial intelligence, elevated trading activity in a volatile market and dealmaking that has benefited from a relaxed regulatory environment under the Trump administration. Wall Street hauled in $45.9 billion in profits in the first half of the year, up 51% from the same period a year ago, according to the New York State Comptroller’s latest report on the securities industry in New York City. At the current pace of growth, the industry’s profits in 2026 could exceed $90 billion for the full year — smashing through previous records and outpacing the inflation-adjusted record set in 2009. The boon for traders and bankers comes as AI investment is fueling US economic growth even as consumer sentiment hovers at historic lows due to concerns about the cost of living, from rising energy prices to stubborn food inflation. “Despite geopolitical tensions and economic uncertainty, the industry has remained resilient,” Thomas P. DiNapoli, New York State Comptroller and author of the report, said in a statement. The good times are expected to keep rolling, but risks remain. The financial industry has a lingering obstacle to deal with: rising interest rates. The key 10-year Treasury yield, which sets interest rates across the economy, hit 5.35% on Monday — its highest level since 2002. The recent rise in interest rates “may dampen profitability” if dealmaking slows down or firms’ interest liabilities rise significantly, DiNapoli noted. The surge in bond yields is pushing up the cost of borrowing from mortgages to auto loans, which can weigh on economic activity. Higher yields can also raise risks for the stock market and put a chill on the hot IPO and dealmaking market. “Rising yields for bonds issued by the U.S. and other governments in recent weeks are another concerning indicator for investors,” DiNapoli wrote in the report. Wall Street rides the AI wave The New York City comptroller’s office had forecasted in May that Wall Street would earn $45.3 billion in profits for the entire year — a figure that has already been surpassed. The surge in profits has been driven by robust trading in stocks, bonds and currencies, fees from supervising and advising clients’ investments, underwriting initial public offerings and a pickup in mergers and acquisitions. “Investment in AI companies continues to drive the market,” DiNapoli wrote. AI-related venture capital spending hit $407 billion in the first half of the year, more than 50% higher than the annual total of $264 billion in 2025, the report found. The AI boom, a pickup in M&A and a series of IPOs have created a sweet backdrop for earnings. Revenues from underwriting activities — like IPOs — rose 68% year-over-year in the first half of 2026, the report found. Anthropic, a powerhouse AI company that could be valued at $2 trillion, is expected to go public this year, creating another major opportunity for Wall Street banks to haul in fees from underwriting and trading activity. Wall Street’s fortunes have also been aided by a business-friendly administration in the White House, DiNapoli said. The boosts to companies’ bottom lines are reflected in growing salaries: The average annual salary (including bonuses) in New York City’s securities industry rose 11.1% to $561,770 in 2025. The bonus pool last year reached $49.2 billion, the report found, equivalent to an average bonus of $246,900 per employee, up 6% from the previous year. Wall Street’s windfall is also a boon for New York State and City tax revenues. The industry’s contribution to New York City tax collections rose 15.8% in the 2026 fiscal year compared to the prior year. “Commensurate with record industry profitability, tax collections related to securities continue to reach new levels,” DiNapoli wrote in the report. Still, bond market volatility has picked up in recent weeks. The rise in interest rates could put pressure on Wall Street firms’ trading returns, while also dampening the outlook for the IPO market and dealmaking, as well as the consumer. Wall Street is at the center of the AI boom, but is also exposed to any downturn or fading enthusiasm. “While the industry continues to see strong profits, there are growing concerns regarding ongoing geopolitical conflicts, inflation and interest rates, the outsized contributions of the burgeoning AI sector and the deregulatory push of the current administration,” DiNapoli wrote. He added that “the potential for an industry downturn presents an increasing risk to public finances and the broader regional economy.”