The quarter was excellent for Wall Street banks, and the good times are yet to come.

• Investment banks in the U.S. experienced a record-breaking quarter due to increased trading activity surrounding the election and a surge in investment banking deals.
• Easily, JPMorgan Chase, Goldman Sachs, and Morgan Stanley surpassed estimates for the fourth quarter.
• And deal activity is only picking up steam, according to bank executives.

Investment banks in the U.S. reported a record-breaking quarter due to increased trading activity around the election and a rise in investment banking deals.

The fourth quarter of 2020 was the best for traders at , with revenue surging 21% to $7 billion. Additionally, the equities business generated a record $13.4 billion for the full year.

After a period of low expectations due to the Federal Reserve raising rates and grappling with inflation, Wall Street experienced a return to its preferred environment for traders and bankers. The Fed's easing mode and the election of Donald Trump in November boosted banks such as JPMorgan, Goldman, and easily exceeded expectations for the quarter.

The machinery driving Wall Street is gaining momentum as U.S. corporations have been hesitant to engage in mergers and acquisitions due to regulatory uncertainties and increased borrowing costs.

According to CEO Ted Pick and Goldman CEO David Solomon, banks are experiencing an increase in backlogs of merger deals due to optimism about the business environment, including expectations for reduced corporate taxes and streamlined approvals.

According to Pick, Thursday, Morgan Stanley's deal pipeline is "stronger than it has been in 5 to 10 years, possibly even longer."

Despite a 25% increase in capital markets activity including debt and equity issuance from the depressed levels of 2023, the entire Wall Street ecosystem has been lacking a key driver of activity due to the absence of normal levels of merger activity.

High-margin transactions with a multiplier effect through the whole organization are what make multibillion dollar acquisitions sit at the top of the waterfall for investment banks like Morgan Stanley, Pick explained.

The creation of wealth by executives through their business activities generates the need for other types of transactions, such as loans, credit facilities, and stock issuance, while also requiring professional management of the resulting wealth.

""The final piece we've been waiting for is M&A tickets, which are the contracts governing merger deals," Pick said, excitedly referring to the investment bank."

The IPO market, which has been sluggish recently, is expected to pick up, according to Solomon, who spoke to an audience of tech investors and employees on Wednesday.

"Earlier that day, Solomon stated that there has been a significant shift in CEO confidence due to an increased appetite for deal-making, a backlog from sponsors, and an improving regulatory environment."

Wall Street's dealmakers and traders will benefit financially during the upcoming period of economic growth.