Understanding Morgan Stanley’s Recent Stock Surge: What’s Behind the Gains?

Morgan Stanley’s stock (NYSE: MS) has increased by approximately 42% so far this year. In comparison, rival Goldman Sachs stock (NYSE:GS) has risen about 55% during the same period. What factors are driving the rise in MS stock?

Strong Financial Performance Boosts Confidence

During the third quarter, Morgan Stanley reported impressive financial results. Earnings jumped 32% from the previous year to around $3.2 billion, while revenues grew to $15.4 billion from $13.3 billion last year. Although high-interest rates caused significant slowdowns across the industry two years ago due to increased borrowing costs, the Federal Reserve’s decision to cut interest rates starting in September has encouraged firms to re-enter capital markets. This shift has positively impacted investment banking revenues, along with equity and fixed-income underwriting activities. For those seeking stable growth without the volatility of individual stocks, the High Quality portfolio has outperformed the S&P 500, achieving over 91% returns since its inception.

Diversification Strategy and Stable Revenue Streams

In recent years, Morgan Stanley has diversified its operations, focusing more on wealth management rather than traditional investment banking and trading, which can be unpredictable. This shift allows for more predictable revenue through recurring fees. In the third quarter, total assets in the Wealth and Investment Management divisions surpassed $7.5 trillion, bolstered by rising stock market valuations and increased inflows. Wealth Management revenues climbed 14% to $7.3 billion, with pre-tax income in that sector reaching a record $2.1 billion.

Volatility and Long-Term Performance Insights

Despite the recent surge, MS stock performance over the past four years has not been consistent. Returns were 47% in 2021, -10% in 2022, and 14% in 2023. Meanwhile, the Trefis High Quality (HQ) Portfolio, which consists of 30 stocks, has demonstrated less volatility and has beaten the S&P 500 each year during this timeframe. The stronger returns with reduced risk highlight the stability of the HQ Portfolio compared to the stock market’s fluctuations. So, what does the outlook hold for Morgan Stanley’s stock?

Political Influence and Market Potential

The potential re-election of Donald Trump has sparked renewed optimism in the financial sector. Investors hope that Trump’s administrative focus on deregulation could lead to less stringent bank oversight, unlike the current Biden administration, which might enhance bank revenues through increased deal volumes and lending activities. Anticipated tax cuts could further benefit Morgan Stanley and its clients. Additionally, the cessation of quantitative tightening by the Federal Reserve is likely to increase market liquidity and lower financing costs, which can stimulate capital market activity, asset valuations, and wealth management growth. Morgan Stanley has also expressed optimism for a rebound in IPOs and mergers and acquisitions, with an expectation for larger company sizes. Our valuation of MS stock stands at approximately $103 per share, which is below its current market price. For more insights, refer to our analysis of Morgan Stanley’s valuation .

[1] Returns as of 12/17/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.