Recession not likely, says Morgan Stanley's Gorman

Recession not likely, says Morgan Stanley's Gorman
'If ... you've got a client sitting on a lot of cash earning zero, I would hope you're telling them to put it into Treasuries or something,' Gorman said.
OCT 18, 2023

Morgan Stanley chairman and CEO James Gorman, who is stepping down from that lofty perch next year, said Wednesday morning in a conference call with analysts that a recession is not on the immediate horizon.

Gorman's call comes after months of speculation by a variety of market participants, including some financial advisors, that a recession was looming. That means that clients who have built up cash positions in the face of a potential economic slowdown may want to consider a change of course, according to Gorman, who oversees Morgan Stanley's 15,000 or so financial advisors, some of the most highly productive in the industry when measured by annual revenue.

"What's remarkable is we haven't had a recession, by the way ... and I personally don't think we're going to," said Gorman, who was speaking to analysts about the bank's third-quarter earnings and answering a question about net interest income and the bank's wealth management business. "If you're an advisor and you've got a client sitting on a lot of cash earning zero, I would hope you're telling them to put it in Treasuries or something."

While interest rates sat at almost zero percent at the start of 2022, the fed funds rate has reached more than 5% this year.

While a recession has been in the forecast in 2023, the economic downturn — formally defined as two consecutive quarters of declining GDP growth — has yet to occur, according to an article this month by CNBC.com.

Most economists — 61% — put the probability of a recession at less than 50% in the next 12 months, according to CNBC.com, citing a report from the National Association for Business Economics released this week.

One market strategist and former longtime financial advisor, Rob Isbitts, disagreed. "I think we're already in a recession," said Isbitts, founder of the website ETFyourself.com. "There are a lot of people already suffering, and it hasn't been an obvious recession because it's taken so long for the consumer to max out credit cards or be required to repay student loans.

"Households are concerned about the future, and that will affect spending at some time," Isbitts said.

Meanwhile, Morgan Stanley has seen 308 experienced financial advisors move to the firm over the first nine months of the year, while 363 left to work at other places, according to InvestmentNews data tracking financial advisor movement. That net loss of 55 financial advisors, or less than 1% of the advisor workforce, is a small change when rival firms are courting financial advisors as aggressively as ever.

Sharon Yeshaya, Morgan Stanley's chief financial officer, credited the bank's recent investments in technology as part of the reason advisors may be considering the bank right now.

"The investments that we've made across the technology for wealth management have been what's been able to attract new recruits," Yeshaya said. "If you talk to recruits about why they come to Morgan Stanley, it's the projects they can offer, it's the technology that we have, it's the ability to work with the clients. So you're seeing that continue and then you're also seeing new client acquisition through the funnel."

Morgan Stanley Wealth Management reported net revenue of $6.4 billion for the third quarter, up 5% from the same period last year, and pretax profit of $1.7 billion, up 4% from the third quarter of 2022.

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