16 October 2020

Morgan Stanley Q3 Print Highlights Trading Strength

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What’s happening: Shares of Morgan Stanley edged higher on Thursday after the financial services company surged past expectations for the third quarter.

What happened: The latest results from Morgan Stanley wrapped up a mixed quarter for top US banks. While it was a winning week for trading desks on Wall Street, results from retail-focused banks continued to show effects of the pandemic.

Meanwhile, gains from trading reached a whopping $23.3 billion for the five biggest Wall Street investment banks.

How were the results: Morgan Stanley reported growth in sales and profits for the third quarter, with both metrices topping expectations.

  • Total revenue grew 16.2% to $11.66 billion, exceeding the consensus view of $10.65 billion.
  • Net income climbed to $2.72 billion, or $1.66 per share, versus $2.17 billion, or $1.27 per share, in the same quarter last year. The figure easily surpassed expectations of $1.28 per share.

Why it matters: Morgan Stanley benefited strongly from higher activity in the US stock market. Amid high volatility, investors looked for more attractive entry points and better trading opportunities. Various firms going public added to the action on Wall Street.

Although Morgan Stanley's trading division did not match the record gains achieved in the earlier quarter, the latest results were strong enough to exceed market estimates. Its sales and trading revenue surged 20.2% to $4.15 billion, handsomely topping expectations of $3.35 billion.

Although its trading desk has been in the spotlight, the investment bank has been focusing on shoring up its asset and wealth management divisions to create a cushion for weak trading periods. Morgan Stanley plans to achieve that through M&As and has already announced two major acquisitions - Eaton Vance Corp for $7 billion and E*Trade Financial for $13 billion.

While banks with large trading desks like Morgan Stanley and Goldman Sachs reported strong growth, retail banks like Citigroup, JPMorgan Chase, Wells Fargo, and Bank of America suffered in the third quarter due to their exposure to weak economic activity, lower rates and the need to set aside huge funds to cover credit losses.

How shares responded: Morgan Stanley’s shares rose 1.3% to close at $51.33 on Thursday, following the release of quarterly results. The bank’s stock has gained around 34% in the past six months, although remained flat over the last three.

What to watch: With increased volatility expected ahead of the US Presidential elections, investors expect elevated trading acidity to support another strong quarter for Morgan Stanley. The bank’s recently announced acquisition of Eaton Vance is also viewed favourably, and markets will look out for updates on the transaction closing.

The Markets Today

     

US stocks will be in focus today, ahead of various economic reports scheduled for release during the day.

Context: US stocks retreated for the third straight day, although ending well off session lows on Thursday amid rising covid-19 cases and several countries announcing fresh restrictions.

Details: Investors remained concerned about the rising numbers of coronavirus cases around the world and fading prospects of additional stimulus from the US government before the Presidential elections in November.

France announcing social restrictions did not bode well for the already weak investor sentiment. The jobless claims data also disappointed investors, with the recent numbers rising 53,000 to 898,000 last week. The Empire State manufacturing index also fell to 10.5 in October, from 17 in the previous month. Although the Philadelphia Fed’s factory index climbed in October, it was not enough to lift investor spirit.

While shares of Walgreens Boots Alliance gained around 5% after the company reported stronger-than-expected results for the latest quarter, Fastly’s stock shed around 27% after the software company lowered its revenue forecast for the third quarter.

The Dow Jones index declined 19.80 points to close at 28,494.2 on Thursday, after falling as low as 28,181.54 earlier in the session. The S&P 500 lost 0.2% to 3,483.34, while the Nasdaq 100 declined 0.5% to settle at 11,713.8.

What to watch: Markets await a basket of economic reports from the US, including retail sales, industrial production, manufacturing production, business inventories and consumer sentiment.

US retail sales are expected to rise 0.7% in September following a 0.6% increase in August. Industrial production, which rose 0.4% in August, is likely to increase 0.5% in September. Analysts expect business inventories to grow 0.4% in August. Meanwhile, the University of Michigan's consumer sentiment index is expected to improve slightly to 80.5 in October, from 80.4 in September.

Other Markets: European trading indices closed lower on Thursday, with the FTSE 100, German DAX 30 and French 40 down 1.73%, 2.49% and 2.11%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Italy’s inflation rate and balance of trade, Eurozone’s balance of trade, consumer prices and European Council meeting, Canada’s manufacturing sales, Russia’s producer prices as well as US Baker Hughes crude oil rigs.

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