Volatility spiked in the second quarter of 2025, amid policy uncertainty thanks to tariffs.

• Wall Street used this to its advantage, with Goldman Sachs raking in the best trading revenue in history.

Why it matters: The record quarter offers a lesson for investors about not fearing market down days, which are frequently close in proximity to the best market days as well.

What they're saying: "[P]olicy uncertainty drove clients to reposition portfolios and recalibrate risks across asset classes," according to Goldman Sachs CEO David Solomon on the second quarter earnings call with analysts.

By the numbers: Goldman's equity trading desk generated $4.3 billion in revenue, a 36% jump from a year prior.

• That beat the Street's expectations by over $600 million.
• Morgan Stanley's revenue beat was also driven in part by equity revenue coming in at $3.7 billion, up from $3 billion a year prior.
• Citigroup's trading revenue increased 16% from the prior year, which also helped the bank deliver increased overall profits.

Zoom in: How did Wall Street do it? While this isn't an exhaustive list, here are some of the strategies discussed on earnings calls:

1. Equity intermediation, otherwise known as being the middleman between institutional buyers and sellers.
2. Portfolio financing, or lending to big-money clients.
3. Volume — a lot of clients wanted to position themselves well amid volatility.

Yes, but: It's not just the banks that won this quarter.

• Retail investors earned their way out of the perceived "dumb money" club by staying invested amid the market volatility. (More on this below.)
• Sources were asking in April, How did retail get it so right?

The bottom line: Turns out, the big banks were getting it right at the same time.

Editor's note: This story has been corrected to note that earnings comments from Goldman Sachs were made by CEO David Solomon (not CFO Denis Coleman).

Aggressive dip buying is fading for retail investors, according to JPMorgan, with new data indicating they're picking up ETFs instead of individual stocks.

Why it matters: Retail investors were good — or got lucky — in April, staying invested when the "smart money" pulled out and missed the start of a huge rally.

• The question is whether they're on target again this time.

By the numbers: Retail bought $5.2 billion worth of total equities last week, almost entirely through ETFs.

• ETFs soaked up $4.8 billion of that — 92% of retail flows.

Between the lines: Retail's participation in the meme stock craze gave the group a bad rap for being the "dumb money."

• During the highly volatile month of April, retail stayed invested while hedge funds boosted their shorts on the market, betting on further downside.
• Hedge funds are still trying to unwind those shorts as the market continues to break through record highs.
• This era has given retail investors a bit more credibility on Wall Street.

Zoom in: Within individual stock allocation, here's what Mom and Pop are buying and selling:

• Buying Nvidia, even after the company hit a record $4 trillion market cap
• Selling Tesla shares for the second straight week
• Big buying for options on the "Magnificent 7" stocks, reaching the upper end of JPMorgan's historic range, though still below the peak in 2021

Zoom out: Institutional investors sold $22 billion in cash equities last week, when the market notched additional record highs.

• For investors, retail or institutional, who got seasick during April's market downturn, the rally is an opportunity to reallocate and diversify portfolios ahead of what's expected to be a choppy second half of the year.
• According to BNP Paribas, hedge fund long positions are underperforming and shorts are crowded amid a momentum unwind, which could lead to more risk-off behavior from funds if they move to reduce exposure.

💭 Mady's thought bubble: Investing in individual companies takes strong investor hygiene, whereas investing in baskets of stocks through products like ETFs provides more diversification and, historically, less risk.

• The consistent flows into ETFs could indicate that the "dumb money" is following age-old investing advice: Time in the market matters more than timing the market.
• The fixed flows could also be indicative of retail practicing dollar-cost averaging, consistently buying into the market in regular intervals, which is the most highly recommended strategy for nonprofessional investors.

Be smart: Dips are getting increasingly short, partly thanks to the retail trade.

• If you have to buy the dip, you have to hurry.

Consumer discretionary stocks are outpacing gains in consumer staples over the last 30 days. That means investors could be pricing in an economy where people can keep spending on wants, not just needs.

Why it matters: It's hard to fully suss out the health of the economy right now, but given market leadership, Wall Street might be unconcerned about the near-term fate of the American consumer.

Between the lines: Airline stocks outperformed this week, thanks to strong quarterly earnings, helping prop up the consumer discretionary sector.

• Airline earnings themselves paint a picture of a resilient consumer, especially for higher-income travelers.

What we're watching: The biggest consumer staples companies, like Walmart, have yet to report quarterly earnings.

• If low-income consumers are struggling, that could weigh on earnings from these staples companies.

The bottom line: Wall Street equity investors are not pricing in a recession right now based on current market leadership.