The Wrap: Bank Earnings and Oil Prices Soar as War in Middle East Reignites
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This week in “The Wrap,” we feature the top events in Washington and on Wall Street over the past week. You are invited to watch “The Wrap with Chris Whalen” on The Julia LaRoche Show every Saturday on YouTube to catch our discussion of what’s hot and what’s not in the world of finance and investing. A playback of our quarterly call this week for subscribers to the Premium Service is available at the bottom of this comment.
July 17, 2026 | Updated | Bank earnings for the major banks exploded this week, with record volumes for trading and investment banking. The banks continued to report lower credit expenses and asset yields, however a striking counterpoint to the robust market returns. Meanwhile, risks to the largest banks continues to increase in both public and private markets, as we discuss in our last post (“Trading Points: Bank Earnings Soar and So Does Market/Credit Risk”).
Taiwan Semiconductor Manufacturing (TSM) posted its fifth straight quarter of record earnings this week, the Wall Street Journal reported, but the Nasdaq slipped 1.5%, with tech darlings including Sandisk (SNDK), Western Digital (WDC) and Marvell Technologies (MRVL) among the big losers. The PHLX Semiconductor index was off 4.3%. SpaceX’s (SPCX) post-IPO performance is trailing this year’s top-10 blockbuster debuts.
The renewed fighting between the US and Iran again jeopardizes global oil supplies, after stockpiles were drained earlier in the conflict, Reuters reports. “We’ve burned through all of the buffers we had. Everything,” one trader told the Financial Times. Energy markets had some slack to absorb the first shock, but that cushion is “smaller and shrinking further.” We continue to be concerned about shortages of refined products and particular grades of petroleum in 2H 2026.
Fed Chairman Kevin Warsh testified before Congress this week. He assured the House Financial Services Committee that he and the FOMC will get inflation down to 2%, but didn’t say precisely how they will do it. More to come. Warsh imitated his late great predecessor Alan Greenspan, saying far less than his most recent predecessors did in such hearings.
Warsh added that “inflation is a choice. We monetary policy makers need to choose lower prices, and that’s the commitment my colleagues have made.” But he noted that some things that can affect prices, like “conflicts overseas,” are out of the Fed’s control, making us wonder if the FOMC will not ignore war-related inflation.
“Odds have cooled slightly for the Fed to raise rates at its upcoming meeting,” writes Eric Hagen at BTIG, “even though commentary surrounding the pace of winding down the balance sheet is arguably the bigger focal point, especially with a somewhat more lackluster picture for deposit growth at the G-SIBs and large regional banks. Hawkish equity investors are tiptoeing around the equity REITs and mortgage REITs, even if stocks have historically achieved stronger valuations with the 10-Yr at higher levels.”
The big question we highlight this week is why are bank asset returns falling while bond market yields are rising? To us, the downward pressure on asset returns and loan growth simply illustrates the vast amount of cash looking for returns. That is, inflation. Whether we look at AI stocks or bank lending to private credit or non-QM loans, the demand for earning assets is pushing prices up and yields lower.
Take the housing market for example. Existing home sales unexpectedly dropped by 2.4% in June 2026 to a seasonally adjusted annual rate of 4.09 million units. Concurrently, the median home price climbed to a historic high of $440,600, while total unsold inventory sat at 1.56 million units, representing a 4.6-month supply. Any belief that rising interest rates would force down home prices seems to be a very distant hope indeed.
Circle Internet (CRCL) won OCC approval for First National Digital Currency Bank, allowing it to custody digital assets and, eventually, hold USDC reserves under direct federal supervision. Shares rose more than 10% after the announcement, but the stock is still down significantly over the past year. We would remind readers that when fintech companies go public or win bank charters, that usually means that the stock is about to become decidedly boring.
For example, private payments platform Stripe and and private equity firm Advent International have made a joint offer to acquire PayPal Holdings (PYPL), according to Reuters. The proposed deal would value the payments company at more than $53 billion, but the fact is that PYPL has languished for the past five years.
PayPal stock has suffered significantly over the past 5 years due to intense competition, margin contraction, slowing online checkout growth, and a post-pandemic drop in consumer retail spending. This shift from a high-growth darling to a deep-value play caused the stock to plummet from its 2021 peaks.
“If PayPal accepts, the deal would pair Stripe's Bridge and Privy stablecoin infrastructure with PayPal's PYUSD token and crypto-trading business,” notes The Defiant, “consolidating two mainstream payments companies' stablecoin operations into one.” Fair enough, but will the malaise that has hobbled PYPL now infect Stripe? We still struggle to formulate a business use case for stablecoins, which most closely resemble a prepaid gift card in economic terms.
Gold and silver prices have tumbled over the past five trading days, driven lower by escalating Middle East geopolitical tensions that spiked crude oil prices. This energy rally revived inflation concerns and strengthened expectations that the Federal Reserve could keep interest rates elevated, putting heavy pressure on non-yielding precious metals. But of course if you are looking for a way to earn a yield on precious metals, you should contact our sponsor Monetary Metals.
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