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Morgan Stanley (MS) Financials - Capital Markets | Reports January 17, Before Market Opens

A huge weight has been lifted off the financial sector after years of underperforming a majority of the overall market. Trump’s intent to repeal parts of Dodd Frank coupled with the notion of multiple rate hikes throughout 2017 helps Wall Street’s biggest banks heading into earnings season. Investment banks will see the biggest boost from greater trading revenue associated with higher volatility, improving M&A activity and the possibility of more IPOs in 2017. This upside plays to the strength of Morgan Stanley, which coincidentally reports fourth quarter earnings tomorrow morning.

According to the Estimize data it’s very likely that Morgan Stanley extends its winning streak to 5 quarters. Consensus estimates are calling for earnings per share of 71 cents, nearly 60% higher than the same period last year. That estimate increased by 15% since Morgan Stanley’s most recent report in October. Revenue for the period is forecasted to climb 9% to $8.60 billion, marking a second consecutive quarter of positive growth. Typically shares tend to increase by 2% immediately through an earnings report adding to the stock’s 52% gains over the past 12 months. 

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Morgan Stanley currently derives a majority of its revenue from two major businesses; Institutional Securities, broken down into advisory, equity sales and trading and fixed income, and Wealth Management. In the third quarter overall Institutional Securities generated $4.6 billion in revenue, up from $3.9 billion a year earlier. A majority of these gains came from fixed income sales and trading which jumped from $583 million to $1.9 billion. Revenue from Wealth Management services, on the other hand, grew by $300 million to $3.9 billion coming from increases in net interest income and transactional revenues.

Other sectors such as Investment Management and Capital made comparable gains thanks to the improving market and trading trends. As with the third quarter, analysts expect Morgan Stanley to see ongoing improvement in many of its core offerings.

While Morgan Stanley is looking pretty good, there remains a couple of near term headwinds that could hamper growth. The strength of the U.S. dollar along with greater macroeconomic uncertainty put pressure on Morgan Stanley’s vast international operation. These issues only appear to be worsening amidst a shifting geopolitical landscape.

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