Wall Street Sees a Record-Deal Spree as Reason for Optimism

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Sharon Yeshaya, Morgan Stanley’s chief financial officer, said the financial, health care and technology industries in the Americas and Europe have been the hottest areas, but momentum was building elsewhere, too.

“What we’re seeing is really strong pipelines,” Ms. Yeshaya said in an interview after the bank reported a jump in profits to $3.7 billion. “The strength is broadening.”

The frenetic pace has persisted despite the economic upheaval caused by the pandemic, trade disputes and geopolitical tension, Matt Toole, director of deals intelligence at Refinitiv, wrote about the record quarter. Buoyant stock markets, low borrowing costs and the emergence of new buyers from special purpose acquisition companies will continue to prop up activity, he wrote.

“With the all-time full-year deal making record broken in less than nine months and five consecutive quarters of more than $1 trillion in M&A activity, we have very little data to make true historical comparisons,” Mr. Toole wrote.

Even so, there are plenty of factors that could put the brakes on. Tougher regulators in the United States, rising prices for goods and services and central banks’ moves to cut back on stimulus efforts “will all contribute to how much further this cycle has to go,” he wrote.

Even as they maintained an optimistic outlook, bank chiefs acknowledged there were many factors that could slow things down, including supply-chain problems that have lasted for months and driven up prices for materials and goods. And economic indicators remain mixed: While bank bosses cited increasing consumer spending as a positive sign, consumer confidence is falling.

Perhaps the biggest potential disrupter remains the Federal Reserve. Officials at the central bank could dial back some of their support measures for the economy as soon as next month, and have begun debating when they might need to raise interest rates to tame inflation.

But Jason Goldberg, an analyst at Barclays, said the uneven recovery just isn’t a major concern for the banks right now, especially when it comes to the deals they’re helping line up. Volatility is historically the biggest hurdle to deal-making, he said, so analysts are watching the stock market closely. But he expected global deal activity to remain high for some time.

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