Goldman and Morgan Stanley are attractive stocks in the market right now
Goldman Sachs and Morgan Stanley’s move into less cyclical businesses increases their shares’ attractiveness even after their recent performance has beyond expectations, according to Jefferies investment bank.Goldman Sachs’ continued growth in investment banking should benefit the company even after the current cycle of strong capital market activity ends.
While the 33% ROTE is unsustainable, we’re on the path to future returns that are sustainably higher. Incremental gains in growth and returns were attributable to greater market share in IB/trading and newer initiatives such as transaction banking, consumer banking, and alternatives in asset management, according to Jefferies.
Goldman’s consumer banking deposits have grown at a faster rate than expected.
For Morgan Stanley, the company’s recent acquisitions of a retail brokerage and wealth management firm show how the bank is approaching the future, Jefferies said.
We feel that existing workplace channel growth opportunities, namely from E*Trade (ETFC) and Parametric (EV), will benefit significantly from MS’s global breadth and scale, according to the note.
Another financial crisis?
A leading investment expert who expects the next global financial catastrophe also thinks that stocks will soon come to an end to their bull run, predicting the 1997 Asian financial disaster and the 2008 global financial disaster.
“Massive pressures” on governments, inequality, and growth have all been impacted by the Covid-19 epidemic, according to David Roche, president and global strategist at Independent Strategy.
According to Roche, the more likely event that would precipitate a bear market is rising inflation, which forces central banks to raise interest rates more than expected.
“Central banks are behind the curve in the sense that inflation will return, the larger economies will be overstimulated, and central banks will continue to print money and give it to governments for free,” said the veteran strategist.
Money-printing will generate “enough inflation” to force interest rates up to levels deemed sustainable by markets, he predicts.
“And then we get the new bear market,” he adds.
Another potential trigger, according to Roche, is worsening geopolitical tensions between China and the rest of the world. He singled out the South China Sea as an example of Beijing flexing its geopolitical muscles.
For years, China and several countries, including the Philippines, Vietnam, and Malaysia, have had competing territorial claims in the South China Sea, a resource-rich waterway and vital commercial shipping route through which trillions of dollars of global trade pass each year.
Over the past year, Beijing has become more assertive in advancing its claims in the disputed waters, while much of the world has been preoccupied with the rapidly spreading coronavirus. Some geopolitical risk analysts have warned that rising tensions in the region could increase the likelihood of an unintentional military conflict.
Further geopolitical tensions involving China are “almost baked in the cake,” according to Roche, and it is only a matter of time before they spill over into financial markets.
“We would most likely see it within the next five years. Is it possible to see it in the next five months? “I doubt it, but it exists, and it could be a significant factor,” he said.