Why Morgan Stanley’s Stock Will Likely Outperform The Market Post Coronavirus

Morgan Stanley (NYSE: MS) stock fell 10% over the last five trading days (March 9-March 13) and is down by a total of 28% since early February. However, we expect the bank’s stock to bounce back strongly and potentially outperform the S&P 500 index as the crisis winds down – similar to what was seen after the 2008 recession. A key reason behind our belief is the bank’s leadership position in the equity trading business. Given the extreme level of volatility in equity markets over recent weeks, Morgan Stanley is well-positioned to report strong results for its securities trading arm, which should help mitigate the negative impact of weak economic conditions on its other operating segments. We have detailed trends in Morgan Stanley’s stock compared to the S&P500 in an interactive dashboard titled ‘2007-08 vs. 2020 Crisis Comparison: How Did Morgan Stanley Stock Fare Compared with S&P 500?’, parts of which are summarized below.

The stock market witnessed a significant sell-off on Monday, March 9th, and has been extremely volatile since then, with a couple of days of recovery being followed by a sharper sell-off on Thursday, March 12th. There were two distinct trends driving stocks across industries lower. Firstly, the increasing number of COVID-19 cases in the U.S and other countries outside China is raising concerns about a global economic slowdown. Secondly, a sharp decline in crude oil prices after Saudi Arabia increased production in a price war with Russia spooked investors further. Trefis provides a detailed comparison of -28% Coronavirus crash vs. four historic market crashes in a separate interactive dashboard.

The sell-off in Morgan Stanley’s stock reflects the growing concern among investors, considering the impact that the outbreak and a broader economic slowdown could have on consumer activity. The banking giant has a sizable portfolio of consumer loans through its wealth management operations, which could lead to sizable loan losses if consumer activity levels fall and the economy heads towards a slowdown. Further, as the economic condition deteriorates, it would become expensive for the bank to attract funding, negatively impacting its lending operations. However, Morgan Stanley remains one of the best capitalized big banks in the U.S., and its growing focus on wealth management operations over recent years should help it’s stock outperform the market in the near future.

Morgan Stanley Performance During 2020 Coronavirus/Oil Price War Crisis

• Morgan Stanley’s stock declined by about 10% between Monday, March 9th, and Thursday, March 13th. The stock is down by about 28% since February 1st, after the WHO declared a global health emergency.
• On the other hand, the S&P 500 declined by 9% over the same period and has fallen by 19% since February 1st, after the WHO declared the global health emergency.
• In comparison, Goldman Sachs, which is an investment banking giant, saw its stock fall by about 25% since early February and by about 8% since last Monday. View our analysis for Goldman Sachs here: 2007-08 vs. 2020 Crisis Comparison: How Did Goldman Sachs Stock Fare Compared with S&P 500?

Morgan Stanley Stock Performance During The 2007-08 Financial Crisis

• Morgan Stanley stock declined from levels of around $51 in October 2007 (the pre-crisis peak) to levels of approximately $16 in March 2009 (as the markets bottomed out) and recovered to about $25 in early 2010.
• Through the crisis, Morgan Stanley’s stock declined by as much as 68% from its approximate pre-crisis peak. This marked a sharper decline than the S&P, which fell by as much as 51%.
• However, the stock recovered strongly, rising by 53% between March 2009 and January 2010. In comparison, the S&P rose by about 48% over the same period

Conclusion

While Morgan Stanley stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it will likely bounce back strongly and potentially outperform as the crisis winds down.

You can read about the impact of the coronavirus outbreak on the stock of major U.S. companies, including Netflix, Disney, and P&G, among others on the Trefis coronavirus topic page.

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