Morgan Stanley Earnings Bet: Stock Breaches $100, Eyes Gain

Morgan Stanley's stock eyes $109 high with earnings report on July 16, driven by 51% revenue from wealth management.

By Bill Bullington

7/10, 10:42 EDT
Morgan Stanley

Key Takeaway

  • Morgan Stanley (MS) is set to report earnings on July 16, with its stock recently breaking a key resistance level of $100.
  • The bank's wealth management division, accounting for over 51% of revenue, and a $20 billion share buyback program highlight strong financial health.
  • Despite bullish sentiment for MS, broader market concerns include potential 10% correction warnings from Morgan Stanley's Chief U.S. Equity Strategist Mike Wilson.

Morgan Stanley's Earnings Outlook

As the earnings season kicks off, Morgan Stanley (MS) is poised to be a standout performer among major banks, driven by its robust wealth management business. The bank is set to report its earnings on July 16, and recent market activity suggests a bullish outlook. Morgan Stanley's stock recently broke through a key resistance level of $100, setting the stage for a potential climb to its all-time high of $109. Currently trading at around $103, a breakout above this level could signal further gains, with earnings acting as a catalyst.

Morgan Stanley has been strategically investing in its wealth management division, which now accounts for over 51% of its revenue. This focus has paid off, especially as asset prices continue to rise amid favorable inflation trends. The bank's recent dividend increase and a $20 billion share buyback program further underscore its strong financial health. Trading at 1.8 times book value, Morgan Stanley is at the upper end of its historical valuation range, reflecting investor confidence in its future prospects.

Market Sentiment and Strategy

Market sentiment around Morgan Stanley is optimistic, with options traders looking to capitalize on the bank's potential upside. With low implied volatility, options on Morgan Stanley are relatively inexpensive. One strategy being employed is the August 16 $105/$110 Call Vertical, which involves buying the August $105 Call at $1.98 and selling the August $110 Call at $0.71. This strategy limits risk to $127 per contract, with a maximum potential gain of $373 per contract if the stock exceeds $110 by expiration. This approach leverages low option premiums and aligns with the bullish technical and fundamental outlook for Morgan Stanley.

Broader Market Concerns

Despite the positive outlook for Morgan Stanley, broader market concerns persist. Mike Wilson, Chief U.S. Equity Strategist at Morgan Stanley, has warned of a potential 10% correction in the stock market, citing uncertainties around the U.S. presidential campaign, corporate earnings, and Federal Reserve policy. "I think the chance of a 10% correction is highly likely sometime between now and the election," Wilson stated in a recent interview with Bloomberg Television. He noted that the third quarter could be particularly volatile.

The S&P 500 Index has been on a strong run, hitting multiple record highs this year, driven by expectations of Federal Reserve rate cuts and excitement around artificial intelligence. However, some Wall Street analysts are growing cautious. Goldman Sachs' Scott Rubner and JPMorgan Chase's Andrew Tyler have both expressed concerns about potential market pullbacks, particularly if corporate earnings disappoint. Citigroup's Scott Chronert has also sounded alarms about a possible downturn.