MS

Morgan Stanley (MS) is one of the best performers among the largely drowning stocks of US banks during this earnings season. Indeed, it managed to hold nearly 2.5% of intraday gains at the regular session of April 16, when its Q1 report came out. Yet, the initial surge in share price reached a 4% of height soon after the opening bell, accompanied by fresh profit taking, as no enthusiastic buyers were seen near these slightly elevated levels. Technically, the two latest candlesticks on MS daily charts turned black despite initial price gaps, which is not a positive sign even for the short-term.

A chance for testing multi-month resistance at nearly $95 per share is still here, because Morgan Stanley showed no essential weaknesses in its own forecasts for the rest of the year, unlike other monster financial institutions including JPMorgan Chase and Wells Fargo, which noted last Friday that their interest payments were below expectations, as the whole banking industry needed to be ready to future Federal Reserve's rate cuts. Rising uncertainty over the central bank's outlook for the borrowing costs prompted the benchmark 10-year public bond yields to soar above 4.65% this week, which is good for interest income, but understates the value of the banking balance sheets, based on the same kind of U.S. bonds which the banks had to acquire for safe haven purposes over the years. Now these bonds rather became the source of financial rigidity, or one may call it awkwardness, leading to the lack of free cash the banks may use for their lending business and investment purposes.

As other Wall Street banking pillars, Morgan Stanley beats consensus estimates in terms of its incredible past performance. Higher investment banking segment helped a lot, which also took place in the case of Goldman Sachs, as another rather positive example. "We saw building momentum in investment banking, both in our M&A and underwriting pipelines across corporate and financial sponsor clients," Morgan Stanley CEO Ted Pick commented, adding that a "multi-year M&A cycle" is to be launched now, and this period may last 3 to 5 years. Geopolitical risks may even create incentive for more deals, he said, when businesses are shifting their international footprint partly because of the two major conflicts. Morgan Stanley also noted it is still bullish on the U.S. economy.

Q1 2024 was the best quarter for MS since April 2022, as the banking group announced its EPS (equity per share) of $2.02 vs consensus estimates of $1.66. A more than 20% surplus compared to average forecasts, yet a rising wave on charts is very modest. Logically, the situation around other banking stocks with worse reported (and especially forecasted) numbers may be even less enjoyable for the bullish camp. We clearly understand that other large banks are usually more dependent on their customers' well-being, rather than investment projects. This is why the Bank of America lost 3.5% on the same day, despite its EPS was also more than 9% above consensus estimates, yet this has not bailed it out to escape from price falling. Competition in high yield from private credit and leveraged loan markets were marked even in the conference call by Morgan Stanley.

The first quarter was good for most U.S. banks, yet the future prospects scared the crowds of investors. If so, they are ready to move down on the stocks of many other big banks and are ready to be no more than just patient in the best cases like Morgan Stanley and Goldman Sachs. There is a great distance between the road of tolerance to potential headwinds and the road of enthusiastic buying on the hot heels of earnings reports. So, other segments seem preferable compared to any banking stocks.