Morgan Stanley: Financial Winner

NEW YORK ( TheStreet) -- Morgan Stanley ( MS) was the big winner on a second consecutive day of strong performance for bank stocks, with shares rising over 6% to close at $27.00.

The broad indices all ended with strong gains of at least 1.3%. The KBW Bank Index ( I:BKX) was up 1.6% to close at 61.58, with all 24 index components up for the session.

In a monthly event that saw even more preliminary hype than usual, the Department of Labor reported that nonfarm payrolls in the United States grew by 175,000 positions during May, increasing from a downwardly revised 149,000 in April. Economists polled by Thomson Reuters on average had expected the April jobs growth number to come in at 170,000.

The May employment growth number came in below the six-month average of just over 200,000.

A key number that was sure to please stock investors was the U.S unemployment rate, which rose during May to 7.6% from 7.5%, because of a an increase in the labor participation rate.

The Federal Reserve has kept its short-term federal funds rate in a range of zero to 0.25% since late 2008. The Federal Open Market Committee (FOMC) has said after several recent meetings that it would be "appropriate" to keep the federal funds rate in its current range at least until the unemployment rate drops below 6.5%, assuming inflation is held in check.

The Fed has also been making monthly purchases of $85 billion long-term securities in an effort to hold long-term rates down. With a slew of conflicting economic reports and contradictory statements among several FOMC members, including Federal Reserve Chairman Ben Bernanke, investors have been anticipating a slower pace for bond purchases by the central bank by pushing up the market rate for 10-year U.S. Treasury bonds.

The yield on 10-year Treasury bonds was up by 8 basis points to 2.16% late Friday afternoon, after rising 38 basis points from the end of April through Thursday.

Morgan Stanley

Morgan Stanley's shares have returned a remarkable 42% this year, following a 28% return during 2012. The shares trade just below their reported March 31 tangible book value of $27.39, and for 10.6 times the consensus 2014 earnings estimate of $2.55 a share. The consensus 2013 EPS estimate is $2.08.

Deutsche Bank analyst Matt O'Connor on May 31 upgraded Morgan Stanley to a "buy" rating with a $30 price target.

O'Connor sees "meaningful leverage to rising interest rates" for Morgan Stanley, and in a note to clients wrote that "a 100bp move in rates would boost annual EPS by about $0.20."


-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.