Positive Results on These 2 Holdings Overshadowed, Weighing on Shares

We are seeing the Portfolio’s positions in both Bank of America BAC and Morgan Stanley MS trade off on Wednesday, despite both companies reporting solid June quarter results and issuing favorable outlooks for their investment banking and asset management businesses.

What’s weighing on both stocks is the outsized surge in investment banking revenue posted by Goldman Sachs GS, which was up 26% year over year in the June quarter. Against that, good and even great performance is going to appear to fall short, especially following the outsized runs in MS and BAC shares. It was those runs that led to our recent downgrade of BAC and MS shares to Two rating from Ones.

There is little question that Goldman garnered market share during the quarter, but there are multiple avenues to the investment banking revenue stream, including M&A, IPO, secondary offerings and advisory work. The nature of that work means market share levels can jostle around quarter to quarter, but with investment banking pipelines at Morgan and BofA being robust, we are inclined to remain owners of those shares to capture the incremental earnings leverage as that pipeline converts into transaction revenue. As part of our homework, we will also continue to track IPO and M&A announcements, identifying the firms tied to those transactions.

Following the outcome of the 2025 Fed stress tests, we boosted our MS and BAC price targets to $150 and $55, and based on what we saw in their respective earnings reports and guidance color, we see no reason to change those targets. In terms of our current ratings, we would look to revisit it for MS shares closer to $125, which offers a much more favorable risk-to-reward entry point as well as firm technical support. It would also close the mid-May gap we see in the chart. As we think about MS shares in particular, let’s remember that in addition to increasing its dividend following the Fed stress tests, it also reauthorized a multi-year share repurchase program of up to $20 billion, without a set expiration date, that began at the start of the current quarter.

For BAC shares, we’d consider a rating revision from Two if the shares positively test support near the 50-day moving average, just below $45, but a much more compelling pick-up point would be near $42 to $43. If we had to choose between the two, given the prospects for better investment banking volumes in 2H 2025, we would favor MS shares over BAC, given the greater exposure and therefore operating leverage to that activity at Morgan than at BofA.

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At the time of publication, TheStreet Pro Portfolio was long MS and BAC.