Morgan Stanley (MS - Get Report) shares fell sharply lower in pre-market trading Thursday after the bank posted weaker-than-expected fourth earnings that looked out of step with sector profits from peers that have taken U.S. stocks to their highest levels in more than a month.
Morgan Stanley posted earnings of 80 cents per share for the three months ending in December, nearly three times the 26 cent tally from the same period last year but well shy of the consensus forecast of 89 cents. Group revenues came in at $8.5 billion, again missing the $9.3 billion estimate, in the wake of increased market volatility and a slump in merger activity over the final three months of last year.
"In 2018 we achieved record revenues and earnings, and growth across each of our business segments - despite a challenging fourth quarter. We delivered higher annual returns, producing an ROE of 11.8% and ROTCE of 13.5%, as we continued to invest in our businesses," said CEO James Gorman. "While the global environment remains uncertain, our franchise is strong and we are well positioned to pursue growth opportunities and serve our clients."
Morgan Stanley shares were marked 4.11% lower at the start of trading Thursday and changing hands at $42.68 each, a move that wipes out all of its gains over the past three months.
Wall Street's biggest banks have led markets higher this week, with each of Citigroup (C - Get Report) , Goldman Sachs (GS - Get Report) and JPMorgan Chase (JPM - Get Report) rising firmly after their fourth quarter earnings reports and bullish commentary on the broader economic and sector outlook for their domestic and international markets.
"The big banks are leading this market charge out of the bear-den abyss and painting a stunning picture," TheStreet's founder, Jim Cramer, said last night on CNBC's Mad Money program. "These stocks got outrageously oversold in the severe, albeit short-lived, fourth quarter bear market but investors are now realizing that banks are now making literally, not figuratively, more money than ever, and they're doing so with less risk and fewer people as technologies have replaced tons of while-collar jobs."
The S&P 500 Banks index, the sector benchmark, rose 2.72% yesterday and is up nearly 10% for the year, reversing most of the 13.11% decline over the fourth quarter of 2018 that included a near 20% slump in the three weeks leading up to Christmas.
Goldman has its biggest single-day gain in 10 years last night, rising 9.52% to the top of the Dow Jones Industrial Average after beating both top and bottom line estimates in a fourth quarter earnings reports that was highlighted by a 13.3% return on equity for the whole of 2018, the best in a decade.
Bank of America, for its part, topped the S&P 500 last night with a 7.16% gain, its best in six and a half years, built in part on a 2% increase in its deposit base, which topped $1.34 trillion, and its expanding digital business plans.
Banks earnings in particular, but the wider market in general, are also finding support from a modestly steepening yield curve, as benchmark 10-year note yields rise amid slow but steady investor optimism for longer-term growth, while shorter-term yields slip as the Federal Reserve signals a pause on interest rate increases.
Benchmark 10-year notes were marked at 2.704% in overnight trading, while 2-year notes yielded 2.527%, putting the slope of the curve at around 18 basis points. The U.S. dollar index, which tracks the greenback against a basket of six global currencies, rose 0.1% in early European trading to 96.152.