Forecasting the Season: Wall Street’s Annual Autumn Anxiety

It’s that time of year again. No, not pumpkin spice latte season, but rather, the annual autumn earnings adjustment period on Wall Street. In a move that feels as much a part of the fall tradition as the changing leaves, major banks like JPMorgan Chase and Goldman Sachs have recently lowered their Q3 earnings forecasts, citing—what else?—“growing market uncertainty.”

Here is what is actually going on. For starters, the lowering of earnings forecasts is not merely a reflection of market conditions, but also a strategic maneuver. When banks adjust their earnings expectations downward, they are, in part, managing the always-delicate game of investor expectations. If the actual earnings come in higher than these revised forecasts, it’s not just a pleasant surprise; it’s a smashing success. This practice falls under the broader heading of earnings management, something that any SEC aficionado would recognize from Accounting Standards Codification 606 on revenue recognition.

But why the autumnal timing? Well, historically, fall is a time when the markets get a little jittery (and by “historically,” I mean traders are basically like migratory birds, but instead of flying south, they panic slightly). September has the dubious reputation of being the worst month for stocks, a sort of self-fulfilling prophecy fueled by a mix of genuine economic factors and psychological ones. Thus, banks are preemptively lowering their forecasts to navigate these choppy waters.

Now, let’s play devil’s advocate. Some might argue that the banks are simply being prudent. Market indicators have indeed been sending mixed signals—interest rates, inflation concerns, geopolitical tensions (pick your favorite worry). Fair enough. But there’s also something deeply performative about these forecast adjustments. They’re like the financial equivalent of wearing a raincoat when there’s only a 20% chance of rain—practical, perhaps, but a bit conspicuous.

(Digression: It’s worth noting that for banks, these adjusted forecasts may have less to do with actual market conditions and more with internal strategic plays. Take, for instance, the Dodd-Frank Act’s stress tests. The results of these tests, which assess a bank’s stability under hypothetical adverse conditions, can influence a bank’s decision on capital distribution, such as dividends or buybacks. Lower earnings forecasts could make it easier to sail through these assessments without incident, or at least without a need for serious introspection.)

As the third quarter comes to a close and banks prepare their earnings reports, analysts and traders will be closely watching to see if the September doom and gloom was warranted. But perhaps the more interesting observation is the consistency of this pattern—an annual ritual, almost ceremonial in its regularity. It’s a reminder of how in finance, like in nature, seasons bring predictable cycles of behavior, a dance informed by history and habit as much as by current conditions.

It’s as predictable as autumn itself: the air turns crisp, the leaves turn red, and Wall Street turns… cautious. Whether this is the year when the market defies its traditional autumnal dip remains to be seen. But rest assured, banks will keep managing expectations in the meantime, and therein lies the real twist of the season.

— David Harlan · Columnist