Morgan Stanley Q1 Preview: Spotlight on Trading Resilience Amid Capital Markets Chill

Morgan Stanley (MS) will report its first-quarter results Friday morning, offering investors a key look into the state of global capital markets during a volatile stretch for financial institutions. The firm enters the print facing a mix of optimism and caution. While it closed 2024 on a high note with a blowout Q4, expectations for Q1 have tempered amid a softer macro backdrop and market disruptions caused by trade policy uncertainty.

A disappointing report from Jefferies last month raised red flags about investment banking revenues, and while MS is not as exposed to pure-play advisory as some peers, its capital markets activity will still be under the microscope. Investors will be eager to see whether strength in trading—fueled by Q1's sharp rate swings and geopolitical shocks—can offset an expected slowdown in M&A and underwriting. MS also has a planned headcount reduction of ~2,000 employees, which adds a new layer of focus around expenses and operating leverage under new CEO Ted Pick.

Consensus expectations heading into the release are for earnings per share of $2.21 and revenue of $16.54 billion, per FactSet. With equity markets staging a volatile first quarter and interest rates whipping between extremes, Morgan Stanley’s trading desks—especially in equities—could emerge as a bright spot again. In Q4, the firm posted $3.33 billion in equities revenue, far surpassing expectations. If equity and fixed-income desks capitalize on recent volatility, it could provide a cushion against weakness elsewhere.

However, the outlook for investment banking is murkier. While Morgan Stanley had entered the year touting the strongest M&A pipeline in seven years, dealmaking appears to have hit a speed bump in March as tariff headlines and rate volatility returned. Market participants will be watching for commentary from CFO Sharon Yeshaya on whether corporate boardroom activity has simply been delayed—or derailed.

Another key focus will be on the performance of Morgan Stanley’s massive Wealth Management business. In Q4, wealth brought in $7.48 billion in revenue, supported by robust asset flows and expanding net interest income. With fee-based flows of $35.2 billion and client assets nearing $8 trillion, Wealth Management has become the firm’s most predictable earnings engine. However, interest rate volatility can also pose a headwind here, particularly if clients rotate out of sweep deposits or if deposit betas rise further. Markets will be looking for signs that adviser-led flows remain healthy and that margins can hold up in a more challenging yield environment. Any commentary on pricing pressure or competitive dynamics in wealth will also be closely parsed.

Finally, expense control and capital deployment will be front of mind. MS's Q4 expense ratio of 69% was a pleasant surprise, and investors will want to see if those gains are sustainable—especially as the firm embarks on workforce reductions this month. With Tier 1 capital ratios still comfortably above regulatory minimums and the firm repurchasing $750 million in stock last quarter, there will also be expectations for continued shareholder returns. However, recent analysis from Goldman Sachs suggests MS has the least EPS upside from potential regulatory capital relief compared to other money center banks. That puts more pressure on organic performance to drive returns going forward.

All told, Morgan Stanley enters earnings in solid shape but with a higher bar to clear. A strong trading quarter could extend the bank’s run of solid execution, but any softness in advisory or wealth—especially without offsetting cost discipline—could leave shares vulnerable in a market already bracing for more volatility ahead.

Q4 Recap- A Strong Performance to Close out 2024

Morgan Stanley delivered a robust fourth-quarter performance, beating expectations across most major lines and extending the strong run for big bank earnings. Revenue came in at $16.22 billion, well ahead of the $15.03 billion consensus, while EPS of $2.22 easily topped the $1.70 estimate. The strength was broad-based: equity trading surged 51% year-over-year, wealth management posted solid asset inflows and margin performance, and investment banking fees rebounded with advisory and equity underwriting activity improving notably. Management emphasized growing M&A pipelines, increasing corporate credit demand, and a pivot toward offense in capital markets—all of which support a constructive tone heading into 2025.

One standout area was the Institutional Securities division, where pre-tax income soared to $2.44 billion from just $408 million a year earlier, driven by strength in trading and advisory services. Wealth management, long a cornerstone of Morgan Stanley’s business, also delivered a strong quarter, with revenue rising 12.5% and client assets growing to $6.19 trillion. Meanwhile, Investment Management saw a 56% jump in pre-tax income, bolstered by higher fee-based revenue and performance income. On the capital front, return on tangible equity hit 20.2%, book value per share increased to $58.98, and capital ratios remained healthy, giving the firm room to continue share repurchases and dividends.

Still, there were a few watchpoints. Total non-interest expenses rose to $11.2 billion, above some forecasts, and provision for credit losses jumped sharply to $115 million from just $3 million a year earlier—potentially signaling increased caution around credit trends. While revenue strength was impressive, management also acknowledged that several headwinds from 2024—such as interest rate volatility and deal-making constraints—are beginning to ease but haven’t fully resolved. As Morgan Stanley heads into Q1 earnings, investors will look for confirmation that positive trends in advisory pipelines and wealth flows are converting into sustained momentum, particularly amid growing uncertainty around macro conditions and credit markets.