What happened
Investment-banking company Morgan Stanley (MS +4.46%) saw its stock price jump 6% today in afternoon trading. The share price was trading at about $88.21 per share at roughly 2.40 p.m. ET, up 5.7%.
It was a big day for the market as the Nasdaq was up about 6.2%, the Dow Jones industrial Average surged 3.1%, and the S&P 500 spiked 4.7% as of 2:40 p.m. ET.
So what
The October Consumer Price Index (CPI) was an extremely welcome development for the entire market, as it showed that the Federal Reserveʻs aggressive interest-rate hikes have finally started to have an impact on inflation. The October CPI saw inflation rise 7.7% from a year ago, which is down from the 8.2% rate in September and better than the 8% rate that was expected. In addition, core CPI, which excludes food and energy costs, was 6.3%, lower than expected.
While the inflation number is still high -- and well above the Fedʻs target of 2% inflation -- it gave a market starving for hope some news that it could be heading in the right direction. And this may slow down the Fedʻs trajectory on interest-rate hikes. The Fed has raised rates by 75 basis points at each of its last four meetings.
NYSE: MS
Key Data Points
That sentiment was supported by speeches made by two different Federal Reserve Bank heads on Thursday, including Patrick Harker, head of the Philadelphia Federal Reserve Bank. "In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance," Harker said Thursday.
Lorie Logan, the head of the Dallas Federal Reserve, said something similar today. "I believe it may soon be appropriate to slow the pace of rate increases so we can better assess how financial and economic conditions are evolving," she said.
Now what
The investment-banking industry has been hit hard by this inflationary environment, as deals and initial public offerings have slowed considerably. As a result, Morgan Stanley's investment-banking revenue was down 54% in the third quarter year over year and down 49% for the first three quarters of the year, compared to the previous year.
Investment banks thrive in a strong, stable economy and rising stock market because companies don't want to go public in a down market. Rising interest rates tend to slow down the economy, so a change in Fed policy would be welcome.
Also, it was reported in several news outlets today that Morgan Stanley was considering culling its investment-banking staff in the Asia-Pacific region due to the slowdown in activity. Given the current state of the market, the potential cuts are a way to budget for what is expected to be a challenging 2023.
