The performance of Morgan Stanley’s (MS Quick QuoteMS - Free Report) trading business (constituting a significant portion of its top line) is expected to have been decent in the third quarter of 2024, supported by increased client activity and market volatility. Thus, the company’s trading numbers are likely to have provided some support to its quarterly results, slated to be announced before the opening bell on Oct. 16.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

In the to-be-reported quarter, the likelihood of a soft landing of the U.S. economy, cooling inflation and easing monetary policy drove client activity. Further, volatility was decent in equity markets but was subdued in other asset classes, including commodities, bonds and foreign exchange. Thus, Morgan Stanley is likely to have recorded modest growth in trading revenues.

The Zacks Consensus Estimate for the company’s equity trading revenues is pegged at $2.65 billion, suggesting a rise of 5.7% from the prior-year quarter. The consensus estimate for fixed-income trading revenues of $1.87 billion indicates a year-over-year fall of 4.2%.

Our estimates for second-quarter equity trading revenues and fixed-income trading revenues are $2.81 billion and $1.98 billion, respectively.

Other Key Factors to Impact Morgan Stanley’s Q3 Earnings

Investment Banking (IB) Income: Following the weakness in 2022 and 2023, global mergers and acquisitions (M&As) showed marked improvement in the third quarter of 2024. Both deal value and volume were decent during the quarter, driven by solid financial performance, higher chances of a soft landing of the U.S. economy, buoyant markets and interest rate cuts. Yet, tough scrutiny by antitrust regulators and lingering geopolitical issues were headwinds. 

Also, Morgan Stanley’s position as one of the leading players in the space is likely to have supported advisory fees in the quarter.

The Zacks Consensus Estimate for advisory fees is pegged at $545.9 million, suggesting a year-over-year jump of 21.6%. Our estimate for the same is pinned at $556.4 million.

On the other hand, the IPO market saw signs of cautious optimism, given market volatility, geopolitical challenges and global monetary easing. The impressive equity market performance drove some solid activity in follow-up equity issuances. Further, bond issuance volume improved on favorable economic conditions and corporate spreads at near historical lows. Hence, Morgan Stanley’s underwriting fees are expected to have increased in the quarter.

The consensus estimate for fixed-income underwriting fees is pegged at $497 million, suggesting a whopping 97.2% surge. The Zacks Consensus Estimate for equity underwriting fees of $372.1 million indicates a jump of 57%. The consensus estimate for total underwriting fees of $869.1 million implies a rise of 39.1% from the year-ago quarter.

Our estimate for fixed-income underwriting fees is $552.7 million, whereas the same for equity underwriting fees is $372.9 million.

Thus, growth in total IB income is likely to have been impressive, driven by the expected rise in underwriting revenues and advisory fees. The Zacks Consensus Estimate for IB income of $1.32 billion indicates a year-over-year rise of 40.6%. Our estimate for IB income is pegged at $1.48 billion.

Net Interest Income (NII): The Federal Reserve lowered the interest rates at its September FOMC meeting and signaled more cuts this year. Though this is less likely to impact Morgan Stanley’s NII, the clarity on the Fed’s interest rate path and the likelihood of a soft landing of the U.S. economy drove the lending activity in the third quarter. 

Yet, relatively higher rates might have hurt Morgan Stanley’s NII growth prospects because of elevated funding/deposit costs and an inverted yield curve during the major part of the quarter.

The Zacks Consensus Estimate for NII is pegged at $1.99 billion, suggesting a rise of almost 1% on a year-over-year basis. Our estimate for NII is $1.97 billion.

Expenses: Cost reduction, which has long been the main strategy of Morgan Stanley to remain profitable, is unlikely to have provided major support in the September quarter. As the company has been investing in franchises, overall costs are anticipated to have been elevated.

We expect total non-interest expenses of $12.28 billion, implying an 8.7% year-over-year increase.

What Our Quantitative Model Predicts for MS

According to our proven model, the chances of Morgan Stanley beating the Zacks Consensus Estimate for earnings this time are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Morgan Stanley is -0.38%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell).

Q3 Earnings & Sales Estimates of Morgan Stanley

The Zacks Consensus Estimate for the company’s earnings has been revised 3.7% lower to $1.57 per share over the past week. The estimate suggests a 13.8% rise from the year-ago reported number.

The consensus estimate for sales is pegged at $14.28 billion, which indicates an increase of 7.6%.

Stocks to Consider

Here are a couple of finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases, per our model:

JPMorgan (JPM Quick QuoteJPM - Free Report) is scheduled to release quarterly earnings on Oct. 11. The company has a Zacks Rank #3 and an Earnings ESP of +0.39% at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past 30 days, the Zacks Consensus Estimate for JPM’s quarterly earnings has moved marginally lower to $4.02.

The Earnings ESP for PNC Financial (PNC Quick QuotePNC - Free Report) is +2.23% and it carries a Zacks Rank #3 at present. The company is slated to report quarterly results on Oct. 15.

PNC’s quarterly earnings estimates have remained unchanged at $3.28 over the past seven days.