In a recent report, Morgan Stanley highlighted the resurgence of Wall Street deals and the potential benefits for financial stocks. Completed mergers and acquisitions have seen a significant increase of 16% in the second quarter compared to the previous year. This positive trend indicates a more active deal-making environment, which is favorable for asset managers, banks, and advisors in the financial sector.
According to Morgan Stanley analyst Andrei Stadnik, 2024 marks the beginning of a recovery in mergers and acquisitions from multi-decade lows. The recent financials conference held by Morgan Stanley further confirmed that the capital markets are on a path to recovery, despite some components not yet fully operational. While high borrowing costs have dampened the demand for larger deals in recent years, there is optimism in the market as JPMorgan raised its second-quarter investment banking revenue guidance.
Although high borrowing costs have been a concern, there is hope that a potential interest rate cut in the U.S. could further stimulate deal-making activities. Goldman Sachs expressed that sponsor-led mergers and acquisitions may not necessarily require a decrease in interest rates to thrive, as sponsors hold a significant amount of cash that they are looking to deploy. This indicates that even without a rate cut, there is still potential for growth in deal volumes.
As the market shows signs of recovery, Stadnik offered some strategies to capitalize on the rebound in deals within the U.S. stock market. Within asset managers, he highlighted Blackstone as an “under-appreciated” beneficiary of the improved macroeconomic conditions. Despite Blackstone shares lagging behind the market’s performance this year, analysts remain cautiously optimistic about its future prospects.
Stadnik also emphasized the importance of being overweight money center banks, with Goldman Sachs being recognized as the “purest play” in this segment. The strength of the capital markets is seen as a key driver for the performance of these banks, with Goldman Sachs experiencing solid gains so far this year. However, analysts have a slightly bearish outlook on the stock’s future performance in the next year.
In the realm of boutique advisors, Stadnik identified Evercore as the top idea for capitalizing on the return of large-cap deals. With shares rising steadily this year, analysts are divided between buy and hold ratings for Evercore. The average price target suggests a modest upside potential for the stock in the coming months.
Overall, Morgan Stanley’s analysis paints a picture of a financial sector that is poised for a comeback in deal-making activities. While challenges remain, there are clear opportunities for investors to benefit from the positive trends in the market. As the landscape continues to evolve, it will be crucial for market participants to stay vigilant and adapt to the changing dynamics in the financial sector.