Here's What to Watch As Pressure Mounts on These Two Holdings

We’ve some fade in our shares of Morgan Stanley MS and Bank of America BAC as the initial post-earnings enthusiasm subsided. While recent data from the London Stock Exchange Group LDNXF showed positive inflows into U.S. equities, bonds and money markets, we saw an about-face last week as investors divested $5.83 billion in U.S. equity funds last week with a net $4.05 billion moving out of growth funds.

However, funds flows into bond funds continued last week. Some of this could be some last-minute wrangling ahead of Election Day on Tuesday, given the S&P 500’s 11% gain since its August low. While we made some strategic moves last week that grew our holdings, we also exited the week with our cash levels back near 11%.

Our thinking is that, as we move past the election and this week’s Fed meeting, taking advantage of any opportunities that appear, investors will get back to business. The prospect of lower interest rates in the coming quarters suggests that we should see more funds flow into the market, especially as we see more high-yield savings accounts dial back their lucrative rates. If you have either an Apple AAPL Savings Account or an American Express AXP High-Yield Savings Account, you’ve already seen your annual percentage yield (APY) creep lower. Additional rate cuts should translate into further declines in APY levels.

At the same time, corporate bond issuance is tracking to be the second busiest and according to Goldman Sachs Global Banking & Markets, 2025 could see $1.5 trillion more in corporate bonds being issued. Some of that reflects the need for companies to refinance more than $1 trillion of maturing debt, which will likely come a higher rates. In addition, last week, S&P Global said it expects global bond issuance to rise 17% in 2024, to roughly $9 trillion, and another 4% in 2025. While Morgan Stanley and Bank of America are not the largest fee collectors when it comes to bond issuances, the rising market bodes well for higher fees in the coming quarters.

As we continue to watch fund flows and the IPO market, we’ll do the same with bond offerings as well as named advisors in fresh M&A announcements. Our thinking continues to be that, as the Fed moves monetary policy back toward a more neutral footing, activity in the IPO and M&A markets should continue to improve as should the overall lending market. That keeps us bullish on MS and BAC shares. BAC shares have solid support between $40 to $41, a range that contains both the 50 and 100-day moving averages. With MS shares, the next level of support for them shows up near $106.50. That would be a wonderful pickup point if the shares retraced their October move back to that level.

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