The stock market was pretty quiet on Thursday morning as investors seemed ready to take a pause in what's been an impressive rally so far in 2020. Some cited the Democratic presidential debates as a potential factor keeping markets in check, while ongoing concerns like the COVID-19 outbreak remained on the radar screen. As of 11 a.m. EST, the Dow Jones Industrial Average (^DJI -0.21%) was up 11 points to 29,359. The S&P 500 (^GSPC 0.19%) rose 1 point to 3,387, and the Nasdaq Composite (^IXIC 0.55%) was down a point at 9,817.
The brokerage industry has been rife with consolidation recently, and another big strategic move brought investors' attention to Morgan Stanley (MS -0.01%) and E*Trade Financial (ETFC). Meanwhile, earnings season brought a pleasant surprise to shareholders in Stamps.com (STMP), as the beleaguered shipping specialist got a long-awaited boost.
A big broker buy
Shares of E*Trade Financial jumped 25% after Morgan Stanley announced it would acquire the discount broker. The acquisition will mark the latest combination between major players in the financial industry, reflecting the increased importance of wooing ordinary retail investors over institutional clients.
Morgan Stanley said that it would pay $13 billion for E*Trade in the all-stock deal. Under its terms, E*Trade shareholders will receive 1.0432 shares of Morgan Stanley per share of E*Trade stock. As often happens with stock-based mergers, Morgan Stanley stock gave up ground, but losses were limited to about 3%.
Many had predicted that E*Trade would eventually attract takeover interest. The high-profile merger of Schwab and TD Ameritrade created a colossus in the retail discount brokerage industry, leaving E*Trade at a significant competitive disadvantage. Finding a partner was the best way for the much smaller E*Trade to compete with a combined Schwab/TD Ameritrade, as well as other big players in the retail investing space.
Meanwhile, for Morgan Stanley, the acquisition is in line with the strategic vision that many other institutionally focused financial institutions have taken in appealing to a broader audience. With Morgan Stanley's extensive wealth management business joining forces with E*Trade's broader client base, the combined company will become a new force to be reckoned with in the brokerage industry.
A stamp of approval
Shares of Stamps.com posted even larger gains, picking up more than 60%. The mailing and postage specialist's fourth-quarter financial report raised hopes that the long-suffering company could have a viable path toward a full recovery.
Last year's announcement that Stamps.com would no longer have exclusive rights to U.S. Postal Service postage online raised fears that the company's business model was irretrievably broken. Stamps.com's fourth-quarter numbers did reflect significant downward impacts from the USPS move, including a revenue drop of 5% and a decline of 43% in adjusted earnings per share.
Yet Stamps.com's outlook for 2020 was much better than many had expected. The online shipping specialist forecast sales of between $570 million and $600 million, producing adjusted earnings of $4 to $5 per share.
CEO Ken McBride detailed the ways that Stamps.com will work in partnership with the USPS, as well as United Parcel Service and other e-commerce players going forward. Shareholders liked what they saw, and if Stamps.com can make good on all the potential business in front of it, the stock could keep climbing back toward the much higher levels it reached in 2018.