Morgan Stanley stock has slipped substantially in the past few weeks as enthusiasm about mergers and acquisitions (M&A) and IPOs cooled. MS initially jumped to $230 in July and then tumbled to a low of $182.62. Focus now shifts to its upcoming earnings, with the options market pointing to moderate volatility.
Morgan Stanley is being impacted by investment banking slowdown
Morgan Stanley stock has come under pressure in the past few weeks as recent data shows that mergers and acquisitions activity has cooled. A recent report showed that global M&A activity totalled $993 billion in the third quarter, down 41% compared to the second quarter. It marked the first quarter that the figure dropped below $1 trillion since the second quarter of last year.
Morgan Stanley is highly exposed to the M&A business because it is one of the biggest names in the industry. Dealogic data shows that it has advised deals worth over $1.084 trillion this year, up from $892 billion in the same period last year. It ranks as the third-largest bank after Goldman Sachs and JPMorgan.
Morgan Stanley also ranks as the third-biggest bank in equity capital markets after Goldman and JPMorgan. Its ECM value has jumped to $73.2 billion from $58 billion last year. In total, Dealogic estimates that its investment banking revenue stands at over $5.88 billion from $4.7 billion.
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MS to publish its financial results
The next important catalyst for Morgan Stanley stock is the upcoming earnings announcement, which will provide more color about its business. Yahoo Finance data shows that the average estimate is that its third-quarter revenue rose by 10% to $20.1 billion, with the earnings-per-share (EPS) rising from $2.8 to $2.92. The company often beats estimates, and this trend may continue.
The last earnings report showed that Morgan Stanley’s institutional securities revenue rose to $11.04 billion in Q2 from $7.6 billion in the same period last year. Its wealth management revenue rose from $7.7 billion to $8.8 billion, while the smaller investment management segment made $1.6 billion.
The options market expects moderate volatility when it publishes its financial results. Data shows that it has an implied volatility of 51%, up from its historical average of $20. Most of the calls are concentrated at $205, up by about 8% from the current level. It has a put/call ratio of less than 0.50, a sign that there are more calls than puts.
Morgan Stanley stock technical analysis
MS stock chart | Source: TradingView
The weekly chart shows that the MS stock has retreated in the past few weeks. It dropped in the last six consecutive weeks as investors brace for weak earnings. On the positive side, it has remained above the ascending trendline that links the lowest levels in April last year, March this year, and September. It also coincided with the 50-week moving average.
Therefore, there is a likelihood that the stock will rebound after earnings. If this happens, the next initial target to watch will be at $200. A move above that level will point to more gains towards $220. A move below the ascending trendline will invalidate the bullish outlook.
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