Earnings season started today and for a moment, Wall Street lost its nerve. Then a lot of stocks bounced back. Evidently the bad news wasn’t quite so bad . . . and the stocks at the center of the story had already anticipated the worst of it anyway.

I’m talking about the banks. Today showed that two of the biggest had a hard time last quarter, with JP Morgan (JPM) profit dropping 41% while Morgan Stanley (MS) saw the bottom line fall 29% from last year’s level.

That’s a substantial deterioration. Across both sprawling institutions, very few of the internal numbers are going in the right direction. Investment banking revenue has cratered. Wealth management is softening. And while trading activity is up, internal asset portfolios have taken a hit.

JPM in particular set an extra $428 million aside to cushion expected borrower defaults, which flashes a warning sign on the economy. Rising reserves mean the bankers suspect that loans that looked good in the recent past are now more likely to run into trouble.

That’s usually what happens in a recession or even a more straightforward “slowdown.” Money gets tight when the economy cools. If it gets too tight in the wrong spots, people can’t make their payments.

Or at least, that’s the theory. But those default reserves ebb and flow. A year ago, JPM released $1.8 billion in reserves back as profit, artificially enhancing those historical results and making the year-over-year comparisons artificially steep.

Maybe we’ll see a wave of defaults. Or, if the COVID era is any indication, maybe we won’t. Either way, the real slowdown here was on the investment banking side.

Deals hit a frenzied pace last year. Compared to that, anything will look glacial. And 2020 turned into a boom year too, which means we have to go back three years to get any sense of “normal.”

Turns out JPM booked $200 million more investment bank revenue last quarter than it did back in 2019. That side of the business isn’t disintegrating. It’s up 10% a year throughout the pandemic, the current freeze and the boom in between.

That’s pretty good. And Wall Street gets it. Comparisons were always going to be tough this quarter. It turns out there was a little more deterioration than expected, but on the whole the numbers more or less matched the targets.

We knew the boom was over. But these aren’t recession numbers and there wasn’t a huge shock here. If this is the worst the earnings cycle gives us, it’s going to be a good cycle.