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Morgan Stanley Forecasts Delay in Investment Banking Rebound due to Market Volatility

Market volatility and economic uncertainty due to fluctuating tariff discussions are anticipated to delay the eagerly awaited robust rebound in investment banking in 2025, according to analysts at Morgan Stanley. Initially, Wall Street had expected increased capital markets activity in 2025 following the election of U.S. President Donald Trump in November, fueled by optimism for reduced regulation and corporate tax rates. However, this optimism has not yet translated into action, as clients are adopting a cautious "wait-and-see" approach. Morgan Stanley analysts discussed the challenges, stating, "We are now living in a new reality. The daily whiplash of tariff talks is significantly raising uncertainty for CEOs, boards, and sponsors looking to plan, negotiate, and launch deals." Notably, investment banking announcements and completions in the first quarter of 2025 have been below expectations. The current forecast from Morgan Stanley indicates subdued capital market activity in the first half of 2025, with a more significant uptick anticipated later. This outlook hinges on the assumption that market volatility and recession fears will diminish in the near future as clarity on tariffs increases. Despite the ongoing market fluctuations, analysts at Morgan Stanley believe that the dealmaking environment remains conducive, with anticipated changes favoring a more standard approach to antitrust enforcement. Moreover, private equity firms are holding $4 trillion in uninvested capital, ready for deployment alongside heightened demand from sponsors and corporations. As management gains confidence in economic forecasts over the months ahead, a resurgence in dealmaking is expected, with assessments suggesting that peak uncertainty regarding tariffs may have been reached. Recent signs of increasing activity were noted by Morgan Stanley analysts, referencing BlackRock's recent cross-border deal as an indicator of growing investor confidence to take decisive actions.