Morgan Stanley (MS) stock has been firing on all cylinders this year, helped by the strength of its franchise amid challenges in its key markets. It has risen in the past six consecutive weeks, moving to a record high of $120, giving it a market cap of over $194 billion.
It has jumped by over 30% this year, beating other popular Wall Street banks like JPMorgan, Citigroup, and Wells Fargo. It has also beaten the closely-watched the SPDR S&P Bank ETF (KBE), which has risen by over 24%.
Morgan Stanley background
Morgan Stanley is one of the biggest banks in the United States. Unlike JPMorgan, Citigroup, and Bank of America, it does not provide most of its banking solutions to retail customers.
Instead, it mostly does business with large companies, endowments, and other large institutions. Its business is divided into key segments like wealth management, investment management, and institutional securities.
Over time, it has become the second-biggest wealth manager in the world with over $4.5 trillion in assets. It is second only to UBS, the Swiss banking giant that merged with Credit Suisse in 2023. Some of these assets came from its acquisition of Eaton Vance and E-Trade.
The company makes money from investment banking, where it advises and underwrites transactions. This industry has been under pressure in the past few years as the amount of deals in the country have dried up.
There are signs that the industry is doing well now after some large transactions were announced. For example, Synopsys acquired ANSYS in a $35 billion deal, while Home Depot bought SRS Distribution for $18.3 billion.
Other large deals were Capital One’s buyout of Discover Financial, Cisco’s buyout of Splunk, and HP Enterprise’s purchase of Juniper Networks.
Business is doing well
The most recent financial results showed that its revenue in the last quarter rose to $15.4 billion in the third quarter, up from $13.2 billion in the same period in 2023.
The results showed that its institutional securities revenue rose to $6.8 billion last quarter from $5.6 billion. This growth was mostly because of the strong surge of its investment banking business whose revenue jumped by 56%.
The advisory revenue rose to $546 million, while its equity underwriting and fixed income underwriting jumped to $362 million and $555 million, respectively.
Meanwhile, Morgan Stanley’s wealth management revenue rose to $7.2 billion, as its assets under management surged. It investment management division had over $1.5 billion in revenues during the quarter.
Catalysts remain
Morgan Stanley stock has numerous catalysts ahead. First, the Federal Reserve has already delivered one rate cut this year. However, the bond market signals that the pace of rate cuts will continue moving downward at a slower pace in the next few months.
The 10-year yield has risen to 4.20%, while the 30-year and 2-year yields jumped to 4.45% and 4.05%, respectively. This is a sign that the market expects that rates will remain higher for longer. Indeed, the CME FedWatch tool estimates that rates will remain above 3% in December next year.
Moderately higher interest rates will be positive for Morgan Stanley because of its higher net interest margin.
Soaring stocks and the upcoming election
At the same time, the ongoing robust performance in the stock market will lead to more wealth among the wealthy. Just this week, Elon Musk has added over $35 billion in wealth after the company surged. People like Jeff Bezos, Mark Zuckerberg, Larry Elison, and Bill Gates have all added over $20 billion in wealth. Therefore, the company will likely see more assets move to its wealth management business.
A dovish Federal Reserve coupled with a potential Donald Trump administration will be a boom to the deal-making industry. Trump has pledged to deregulate the US, a move that could lead to more deals. Biden’s administration has in the past blocked several deals, including Capri’s merger with Tapestry.
The other potential catalyst is that private equity companies hold hundreds of companies that will need to be taken private. Morgan Stanley will likely benefit because it is one of the biggest players in the advisory industry.
Morgan Stanley stock analysis
MS chart by TradingView
The weekly chart shows that the MS share price has been in a strong bull run in the past few months. It has risen above the important resistance point at $100, its highest swing in February 2022.
The stock has remained above the 200-week and 50-weeek Exponential Moving Averages (EMA). Also, the Relative Strength Index (RSI) has continued rising and has moved to the overbought level.
The MACD indicator has continued rising. Therefore, the stock will likely continue rising, with the next point being at $150. However, before then, the stock could retreat and retest the support at $100 and then bounce back.
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