• Morgan Stanley analyst Adam Jonas boosted his target price for Ford to $15.
• The carmaker has underperformed the markets amid a US sales boom.
• Jonas recently also recommended that investors think about taking some profits from Tesla holdings.

The contrast is vivid: over the past three years, Tesla shares have risen 70% while Ford shares have declined 30%. In 2017, Tesla surpassed Ford's market capitalization and now has the 100-plus-year-old carmaker out-valued by over $10 billion.

Ford, of course, has been steadily profitable for that period, although its margins haven't lived up to expectations. Tesla, meanwhile, hasn't made a dime and just last year blew through $3.5 billion in cash.

Figuring out what Tesla is truly worth is a fool's errand, but Morgan Stanley analysts Adam Jonas seems to think that after the company's big surge in 2017, some profit taking might be in order. He said as much in a recent research note. 

And in a note published Wednesday, he argued that Ford's cheap stock price might represent a buying opportunity. He raised his target price to $15 (Ford is now at $11), his first bump up in over two years, and maintained that Ford could be a good bet going into 2018.

He likes the restructuring that CEO Jim Hackett has undertaken, and he thinks the carmaker's core pickup-truck business will thrive in a US sales environment that could finish the year stronger than expected.

Ford popped higher in morning trading, up over 3%. Tesla slid lower by 2%, to $335.

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NOW WATCH: Jim Chanos says Elon Musk just told his 'biggest whopper' about Tesla yet

• Morgan Stanley and Oliver Wyman just published their annual blue paper on wholesale banks and asset managers, highlighting growing pressures on the asset management industry. 
• As part of the study, the two firms set out their predictions for compensation spending by role across both wholesale banking and asset management. 
• Technologists are going to be in demand, with engineering, tech, quant and analytics staff making up a bigger chunk of bank front office operations, and IT making up a huge portion of the back office. There's a similar story in asset management.
• The report estimates that up to 40% of the asset management workforce "will require fundamental re-training."

The finance workforce of the future is going to look very different. 

That's the conclusion of the annual Morgan Stanley/Oliver Wyman blue paper on wholesale banks and asset managers, published Wednesday. The report highlights intensifying cost pressures on asset managers, which will in turn translate into added cost pressures for the wholesale banks that serve them. 

And that dynamic is going to have significant repercussions for those employed in the finance industry. The report said: 

"As banks adopt new technologies and build new businesses, the talent model will need to shift profoundly. In the front office, demand for quants will increase significantly, while technology experts such as user experience (UX) specialists will need to be aligned with business teams to enable agile proposition development. We estimate these two roles will grow to represent 25% of compensation from <5% today.

"In the back office, IT will make up ~60% of future compensation, driven by higher salaries for more specialized, in-demand technology skill-sets such as user interface (UI) developers."

The same is true for those working in the asset management industry. The report suggests asset managers could cut costs by 30% as a result of investments and advancements in automation and oursourcing. The report said: 

"We expect headcount to reduce due to automation and externalization of the skill-set. We also estimate that up to 40% of the workforce will require fundamental re-training. This will be most significant in portfolio management and asset administration roles where the use of better data and analytics will transform roles.

"As a result, compensation structures will shift. Investment management will continue to demand the lion’s share of compensation spend. Technology and Data Management’s share of compensation will grow fourfold whereas relative spend on automated back office functions will decrease. The share of Distribution will remain largely flat but we expect this role to shift most fundamentally as data and technology will be increasingly important at the interface to customers."

To be sure, there are challenges. For one, attracting these skilled technologists to finance can be difficult, with the report saying "wholesale banks will need to evolve their talent models to compete."

And for asset managers, the retraining of 40% of a workforce isn't likely to come easy. 

"Overseeing this transition should be a CEO role," the report said. "The depth and speed of change required far exceeds the traditional change management process handled by HR departments."

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NOW WATCH: Jim Chanos on the return of choppy markets, Tesla, and the 'rent-seeking behavior' that's hurting our economy

• Based on stock index trading and sentiment shifts over the past few months, Morgan Stanley says the equity market has probably already peaked for 2018.
• The 10% correction that rocked major US indexes in early February will make it difficult for stocks to retest 2018 highs, especially with volatility picking up.

Pack it in, folks. The stock market may have already topped for the year.

So says Morgan Stanley, which is troubled by a series of factors signaling the end of a so-called melt-up period that has seen investors flood into US stocks with little regard for underlying fundamentals.

Major US indexes are operating at a handicap, having plummeted more than 10% over a 10-day period ending in early February. Given that suppressed starting point, Morgan Stanley outlines two reasons it'll be difficult for stocks to get back to the rarefied air they experienced when hitting records in January.

The first headwind is the resurgence of volatility in stocks. After staying locked near record lows for much of 2017, the Cboe Volatility Index, or the VIX — also known as the equity market's fear gauge — has surged since the 10% correction, at one point more than doubling.

The two charts below show this dynamic in action. The one on the left shows gross leverage by Morgan Stanley's hedge fund clients, which serves as a proxy for risk sentiment. The gauge saw a large decline near the time of the correction, suggesting risk thresholds have adjusted to the downside.

Meanwhile, the chart on the right shows a different measure of risk held by investors. It too saw a sharp decline amid the market turmoil last month.

If the market stays choppy relative to recent history, as it has been since the correction, Morgan Stanley says it'll be difficult for both risk measures to reach previous highs.

"We think January was the top for sentiment, if not prices, for the year," Mike Wilson, Morgan Stanley's chief US equity strategist, wrote in a client note. "With volatility moving higher, we think it will be difficult for institutional clients to gross up to or beyond the January peaks."

The second major risk facing US equity investors, Morgan Stanley says, is retail sentiment that appears to have already peaked. For evidence of this, look no further than the chart below, showing that trader bullishness hit a multiyear high earlier this year.

And while the firm says this recent peak in sentiment isn't a great standalone bearish indicator, it says it's "unlikely retail will reach higher heights of excitement this year."

"January's move was perhaps just a punctuation mark on a 59% rally in the S&P 500 from the February 2016 lows," Wilson said. "By the time people are calling for a melt-up, it is basically over."

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• Analysts at Morgan Stanley think Microsoft is just 12 months away from becoming the first $1 trillion company.
• To get there, Microsoft will have to grow Azure, its public cloud business, and expand its margins.
• Cloud adoption is expected to double in the next three years, and Morgan Stanley believes Microsoft is poised to win big when it happens.

Growing interest in the public cloud could make Microsoft the first company to fetch a $1 trillion valuation, according to investment firm Morgan Stanley. 

In an note published Monday, Morgan Stanley analyst Keith Weiss raised his price target for Microsoft from $110 per share to $130 — a gain which would put Microsoft at a market cap of $1 trillion. 

Microsoft shares finished Monday's regular trading session at $93.78, for a total market cap of $722.1 billion. 

Though no company has hit the trillion dollar mark yet, it's widely been seen as a race between Apple and Google. 

Microsoft, however, is in a good position in the next 12 months if it does two key things, according to Weiss: grow its public cloud business and improve its profit margins.

"With public cloud adoption expected to grow from 21% of workloads today to 44% in the next three years, Microsoft looks poised to maintain a dominant position in a public cloud market we expect to more than double in size to [over] $250 billion dollars," Weiss wrote.

"At the same time, the margin story at Microsoft has inflected – we now forecast improving gross and operating margins over the next three years," he said. 

With $17.5 billion in annual revenue, Amazon Web Services is far and above the highest-grossing public cloud business in the market. But Morgan Stanley believes that Microsoft's greater enterprise business offerings will give it a leg up in the long run as more companies move their workloads from on-premise servers and onto the cloud. 

Microsoft doesn't disclose specifics on its public cloud offering, Azure, but the company did share that Azure revenue grew by 98% in calendar year 2017. Its entire cloud division, which includes Azure and cloud-hosted products like Office 365, was valued at $5.3 billion for the quarter that ended Dec. 31, 2017. 

Click here to read the Business Insider PRIME list of the power players at Microsoft who helped Satya Nadella pull off a startling comeback.

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NOW WATCH: Harvard professor Steven Pinker explains the disturbing truth behind Trump's 2 favorite phrases

• Walmart is said to be considering an acquisition of the health insurer Humana.
• Humana has for years had a close relationship with Walmart, partnering on health plans and other initiatives. The conversations underway now also could lead to a closer relationship without a takeover, Reuters reports.
• The combination could help Walmart's existing healthcare businesses — including its pharmacy and health clinics — as healthcare companies continue to merge, according to analysts at Morgan Stanley.
• A deal could also help Walmart confront Amazon Prime memberships, which the analysts describe as "fortifying an impenetrable moat" around Amazon's customers.

News that Walmart may be interested in acquiring the health insurer Humana makes a lot more sense than it first appears to.

Humana has held early-stage talks with Walmart focused primarily on new partnerships, according to multiple news reports. And while you probably think of Walmart as a giant retail business, it's also one of the largest pharmacy chains in the US, behind only Walgreens and CVS.

Walmart has long had a focus on affordable prescriptions as well, offering some generic medications for $4. And Humana has historically had a close relationship with Walmart; for example, they have a cobranded Medicare drug plan and an initiative that provides healthy-food credits.

That pharmacy component — along with the small healthcare clinic Walmart also has — holds the key to why a deal with an insurer may make sense, analysts at Morgan Stanley said in a note on Monday.

One other thing to note: Such a deal could help Walmart take on Amazon Prime.

Protecting Walmart's business

The companies responsible for paying for healthcare expenses — like insurers — are feeling the effects of new procedures and innovative medications coming into the market with high price tags. To counter that, they've been consolidating, in part hoping it will give them more leverage over providers of those expensive treatments. Recent examples include CVS Health and Aetna, which combines an insurer with a pharmacy business in the way a Humana-Walmart deal may. The consolidation, in the end, could also put Walmart at a disadvantage if it doesn't get in the game, the analysts said.

"Like in retail, size and scale also matter in healthcare; thus, consolidation of other retailers and healthcare providers could put Walmart at a disadvantage."

By merging a health insurer into Walmart's business, it could give the joint company a few advantages, such as potentially protecting the retail pharmacy business by driving more people to it, and by having more access through home health to people at home, something Walmart has been working on through its in-home delivery system for groceries and other packages.

Taking on Amazon

Walmart has also been in steep competition with Amazon, leading the company to try things like opening FedEx Office locations inside stores and acquiring companies like Jet. Linking up with Humana could be a strategic move on that front to get a more devoted customer base to rival Amazon's Prime memberships. Walmart doesn't have its own membership model.

"As the battle over consumer spending between Amazon and Walmart intensifies, we are concerned Amazon's Prime membership program is fortifying an impenetrable moat around its customers," the Morgan Stanley analysts wrote. "'Ownership of lives' via healthcare verticalization could be another way to crack into more customers/'members.'"

Credit Suisse analysts separately highlighted the potential for "stickier" customer relationships through the deal.

"The combination could create stickier customer relationships, leverage locations to better coordinate care delivery (potentially by deploying enhanced pharmacy, small clinic or primary care activities), while also reducing costs, and positioning WMT more offensively for changes in both the healthcare and retail sector," it said in a note.

Amazon's ambitions in healthcare are starting to become clearer. The tech giant is teaming up with JPMorgan and Berkshire Hathaway on a nonprofit healthcare initiative, and it already sells over-the-counter medication, including an exclusive line called Basic Care.

While it remains to be seen whether Amazon decides to get into the prescription-drug business, the company could stand to put a lot of pressure on pharmacy businesses including Walmart's.

"The big are getting bigger and with AMZN looming over the healthcare space, it could be in WMT's best interest to act to protect its base," the note said.

SEE ALSO: Walmart's talks with an insurance giant tell you everything about how healthcare is changing

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• Morgan Stanley expects $1 trillion in US infrastructure spending to come online.
• A big winner if this happens will be pickup trucks, the bank's analysts argue.

Morgan Stanley is out on Monday with a sprawling analysis of the investment effects of a huge US infrastructure rebuilding plan.

"While the [Trump] administration seeks $200 billion of federal funding to hypothetically catalyze a total
investment of $1.5 trillion, and the democratic plans contain $1 trillion in direct federal spending, we believe that the policy debate is likely to coalesce around our base case of $1 trillion in additional spending over 10 years," the bank's team of economists and analysts wrote. 

That trillion dollar investment is likely to be very good for a specific category of vehicle that's already seeing booming sales — and delivering fat profits to American automakers: pickup trucks.

"Many investors we speak with don't realize how much pickup demand accounts for the profitability and value of the Detroit [automakers]," the authors wrote. "A 10% move in pick-up truck sales is worth 19% to Ford 2018 EPS and 12% and 7% to General Motors and Fiat Chrysler, respectively."

Pickups need good infrastructure to be driven widely, whereas smaller, urban-oriented vehicles can operate in a more infrastructure-constrained environment. According to Morgan Stanley, the US has under-spent on infrastructure by nearly a trillion bucks since 2010.

Get ready for a pickup-truck war

All three carmakers now have new full-size pickups in the market, so that stage is already set for a good old-fashioned pickup truck war, although given sales volumes, it could be a bit of a phony battle. Ford's trucks will stay on top with its F-150, GM's Chevy Silverado will hold down second, and FCA's RAM 1500 will remain in third — although there could be some jostling between Chevy and RAM given that the new 1500 will hit the market first.

The pickup ascendancy actually points to a strange divergence in how the US auto market is perceived versus how it functions.

The headlines are all about electrified and self-driving vehicles, but those categories make up tiny slices of the market today. The Ford F-Series, meanwhile, has been the country's bestselling lineup of vehicles since the 1980s. And the competition from other segments is falling away, as passenger cars are increasingly being pushed aside by SUVs. 

That said, the pickups — which are highly profitable — are stocking the coffers of the Detroit Big Three and allowing these companies to make big bets on the future of mobility. If a trillion in infrastructure spending put the pickup boom over the top, then anyone invested in advanced mobility should be lining up to thank the most American of vehicles for funding the transformation in how we get around.

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• Software saw a lot of "hyper growth" last year, but that trend is likely to slow through 2019, according to Morgan Stanley.
• Of the 48 companies the firm follows, only three are set to sustain 30% growth through 2019.
• Those three — ServiceNow, MongoDB, and Yext — could see their valuations soar on such growth.

Software companies were high performers last year, with at least 18 growing more than 30% over the year. But Morgan Stanley thinks that trend is on its way out.

In a report published Monday, Morgan Stanley projected that just three of the top software companies — ServiceNow, MongoDB, and Yext — would sustain 30% growth over the next two years.

And those three companies could see their valuation surge on such growth.

"Hyper growth stories in software are becoming more scarce, which could force premium valuations for companies able to sustain these high rates of topline growth," Keith Weiss, an analyst, said in the report.

Beyond those three companies, Morgan Stanley identified five others that could also hit 30% growth if they outperform the firm's expectations: Workday, Splunk, Zendesk, Atlassian, and Proofpoint.

Nonetheless, Morgan Stanley's top picks in software aren't young, high-growth companies. Weiss and his team are expecting big things from old standbys at Microsoft, Salesforce, and GoDaddy.

The firm thinks that Microsoft could hit a market cap of $1 trillion thanks to its growing cloud business and that Salesforce and GoDaddy have the opportunity to significantly grow their margins.

SEE ALSO: Morgan Stanley thinks Microsoft’s cloud business could make it a $1 trillion company in the next year

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• Morgan Stanley has raised its target price for Twitter to $29, saying the stock is worth its expensive valuation.
• The bank says user growth is improving and revenue will likely rise in step.
• Twitter spiked more than 10% in trading Tuesday after the note was distributed to clients.
• Follow Twitter's stock price in real-time here.

Shares of Twitter surged more than 10% Tuesday after Morgan Stanley raised its price target for the stock, reversing its argument of a stretched valuation, citing improving user growth. 

"While previously we were cautious about the durability of TWTR's platform turnaround, more positive advertiser/agency conversations and (we believe) improving user growth make the risk/reward more compelling," analysts led by Brian Nowak said in a note to clients Tuesday.

The bank admits it is above Wall Street's average forecasts for revenue and EBITDA in 2018, but says the stock is still worth buying as advertising revenue continues to rise, user growth improves, and Wall Street's expectations remain too low.

"Valuation continues to be expensive (not new for TWTR), but we think investors are likely to continue to pay a premium for TWTR given 1) expected revenue acceleration in '18; 2) positive revisions pointing to continued turnaround progress; 3) platform scarcity," the analysts said.

Twitter's stock price currently trades at a price-to-equity ratio of 52, almost double the S&P 500 benchmark's 28, and well above competing Facebook's 19 or Yelp's 42, according to data compiled by Bloomberg. 

Morgan Stanley's new price target of $29 is still 7% below where the stock was trading Tuesday morning, but above the Street's average target of $27.40.

Twitter has struggled with quality control in recent years amid an outpouring of abuse allegations on its platform, forcing the stock well below its all-time highs for most of 2016, but the company promised a turnaround.

In its most recent transparency report released earlier this month, Twitter said it had suspended 1.2 million terrorism-related accounts in the past two years. Company insiders reportedly told Fast Company thatCEO Jack Dorsey has been personally involved in blocking controversial accounts including those of so-called "alt-right" personalities.

Shares of Twitter have risen 29% since the beginning of 2018.

SEE ALSO: Twitter investors take aim at fake news, hate speech, and harassment — but the company says it's already doing all it can

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NOW WATCH: Wall Street's biggest bull explains why trade war fears are way overblown

• Morgan Stanley has raised its target price for Twitter to $29, saying the stock is worth its expensive valuation.
• The bank says user growth is improving and revenue will likely rise in step.
• Twitter spiked more than 10% in trading Tuesday after the note was distributed to clients.
• Follow Twitter's stock price in real-time here.

Shares of Twitter surged more than 10% Tuesday after Morgan Stanley raised its price target for the stock, reversing its argument of a stretched valuation, citing improving user growth. 

"While previously we were cautious about the durability of TWTR's platform turnaround, more positive advertiser/agency conversations and (we believe) improving user growth make the risk/reward more compelling," analysts led by Brian Nowak said in a note to clients Tuesday.

The bank admits it is above Wall Street's average forecasts for revenue and EBITDA in 2018, but says the stock is still worth buying as advertising revenue continues to rise, user growth improves, and Wall Street's expectations remain too low.

"Valuation continues to be expensive (not new for TWTR), but we think investors are likely to continue to pay a premium for TWTR given 1) expected revenue acceleration in '18; 2) positive revisions pointing to continued turnaround progress; 3) platform scarcity," the analysts said.

Twitter's stock price currently trades at a price-to-equity ratio of 52, almost double the S&P 500 benchmark's 28, and well above competing Facebook's 19 or Yelp's 42, according to data compiled by Bloomberg. 

Morgan Stanley's new price target of $29 is still 7% below where the stock was trading Tuesday morning, but above the Street's average target of $27.40.

Twitter has struggled with quality control in recent years amid an outpouring of abuse allegations on its platform, forcing the stock well below its all-time highs for most of 2016, but the company promised a turnaround.

In its most recent transparency report released earlier this month, Twitter said it had suspended 1.2 million terrorism-related accounts in the past two years. Company insiders reportedly told Fast Company thatCEO Jack Dorsey has been personally involved in blocking controversial accounts including those of so-called "alt-right" personalities.

Shares of Twitter have risen 29% since the beginning of 2018.

SEE ALSO: Twitter investors take aim at fake news, hate speech, and harassment — but the company says it's already doing all it can

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NOW WATCH: Wall Street's biggest bull explains why trade war fears are way overblown

Morgan Stanley posted a huge first-quarter earnings beat on Wednesday morning.

The bank reported adjusted earnings of $1.45 a share, a 45% increase from last year and well ahead of analyst expectations of $1.28 a share.

Here are the key numbers (emphasis added):

• Revenue: $11.1 billion, up 14% from last year and a record.
• Adjusted net income: $2.7 billion, up 38% from last year and also a record.
• Equities: Revenue of $2.6 billion, up 27% from last year and a record.
• Fixed income: Revenue of $1.9 billion, the highest number since the first quarter of 2015.
• Investment banking: Revenue of $1.5 billion, up from $1.4 billion a year earlier, with advisory and equity underwriting fees up.
• Wealth Management: Revenue of $4.4 billion, and record pretax income of $1.2 billion.

"We delivered very strong results this quarter, with record revenues and net income — and an ROE above our target range," CEO James Gorman said.

Morgan Stanley is the last big bank to report first-quarter earnings. Goldman Sachs on Tuesday joined Bank of America Merrill Lynch, Citigroup, and JPMorgan in reporting first-quarter earnings that beat analyst expectations.

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• Morgan Stanley just posted its best fixed income results in three years.
• The bump came even after Morgan Stanley massively cut headcount and capital in its bond trading unit at the end of 2015.
• Morgan Stanley's fixed income results of $1.9 billion were slightly behind those of rival Goldman Sachs. 

Among the standouts in Morgan Stanley's impressive first quarter earnings report was its standing in fixed-income. 

The New York-bank, which reported record revenues and net income on Wednesday, posted its best fixed income results in three years. 

That's striking considering its a business the wealth management giant once deemphasized. In 2015, it took an axe to fixed-income, cutting 25% of its workforce, replacing its leadership, and slashing bonuses. 

In an earnings report in January 2016, the business was brutally described in a presentation: "Failed to meet objective: Initiated major restructuring."

Ted Pick, Morgan Stanley's head of sales and trading, said in early 2016 that the decision to rightsize the business was largely the result of the fixed-income wallet, or total revenue pool, shrinking by around 40%. Revenues for the business in the fourth quarter of 2015 came in at just $550 million. 

But a couple years on Wall Street can make a difference. Morgan Stanley's fixed-income results of $1.9 billion for the first quarter of 2018 were only slightly behind those of rival Goldman Sach, which posted revenues of $2.1 billion for the business. For Morgan Stanley, that marks the best quarter for the business since 2015. 

The bank said the results reflect "higher results in foreign exchange and commodities, partially offset by lower results in credit products and rates."

Brian Kleinhanzl, an analyst at KBW, described the results as such: "This was a strong trading quarter from MS and the company was able to take share in FICC relative to other companies that have reported."

Morgan Stanley's fixed income results were in stark contrast to many other Wall Street bank which struggled during the first quarter. Fixed income revenues were flat at JPMorgan, and down at Citigroup. Goldman saw a big jump of 23% in its bond trading unit. 

Elsewhere at the bank, Morgan Stanley showed up Wall Street. Its reported adjusted earnings of $1.45 a share, beating analysts' expectations of $1.28 a share. Its revenues from equities came in at $2.6 billion, up 27% from last year. 

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NOW WATCH: There's only one thing that can rescue stocks from a trade war disaster

• Someone is selling the business cards of a trader who recently left Morgan Stanley on Craigslist for $1 million.
• The former employee's name is Morgan A. Stanley. 

Morgan A. Stanley has left Morgan Stanley. And now you can buy Morgan Stanley's old Morgan Stanley business cards. 

Stanley, who recently left the bank of the same name, per reporting by Bloomberg News, was a trader on its fixed-income desk. Stanley joined the firm in 2012. 

Now, someone is claiming to have possession of three of Stanley's old business cards and is selling them on Craigslist for a whopping $1 million. 

Each is in a different condition, according to the advertisement. 

The third card, according to the ad, is the "oldest and most pristine" and a "true gem."

To be sure, prices are negotiable. 

Morgan Stanley (the bank) reported earnings on Wednesday. The bank beat analysts' expectations, reporting a number of records, which included highest ever figures for revenues and net income. Coincidentally, fixed-income revenues were strikingly impressive. 

Morgan Stanley's fixed-income results of $1.9 billion for the first quarter of 2018 were only slightly behind those of rival Goldman Sachs, which posted revenues of $2.1 billion for the business. For Morgan Stanley, that marks the best quarter for the business since 2015.

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• General Motors' North American car business is worth negative $4 billion, Morgan Stanley estimates.
• The bank says GM could return its stock to outperformance by exiting the North American car market. 
• Follow GM's stock price in real-time here.

Morgan Stanley has some ideas for how General Motors can get its stock to performing well once again, and it involves leaving the North American passenger car market completely.

"We value GM's North American passenger car franchise at negative $4bn aggregate value (i.e. before pensions and OPEB)," analyst Adam Jonas said in a note to clients out Friday. "As GM continues to organically move its portfolio away from passenger cars (to as much as 90% light truck by 2020), the portion of passenger cars outside of those sold to rental car companies, government fleets, police cars, and GM employees and retirees is likely minimal."

The idea — which has not been publicly spoken about by GM — is one of several proposed by Morgan Stanley to remedy GM’s severe market underperformance in recent years. The stock has risen just 1.5% in the past three years, while the S&P 500 benchmark index is up 27%.

Other ideas include a radical change to the company’s financial reporting structure, an total exit from South American and Korean markets, and spinning of its well-performing Cadillac brand.

Morgan Stanley recently upgraded GM stock to an outperform rating with a price target of $48 — 27% above where the stock was trading Friday.

"We see reasonable scope for GM management to take steps towards more radical structural change in its group to address issues plaguing its multiple and to attract the talent, capital and business/technical partners required to be relevant in Auto 2.0," the bank said.

SEE ALSO: Trump's tariffs will have a 'twofold effect' on General Motors

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NOW WATCH: Wall Street's biggest bull explains why trade war fears are way overblown

• A trade that was formerly very popular with long-term investors has delivered two straight quarters of negative total return for the first time since 1973.
• Morgan Stanley sees the trade as set for a comeback, and says it has a strategy that's perfect for playing a rebound.

Given how the past few quarters have unfolded, long-term investors are probably asking themselves when it'll be safe to start buying Treasurys again.

After all, intermediate Treasurys — defined as those with maturity between 1 and 10 years — have been stuck in a serious rut. They've turned in consecutive quarters of negative total return for the first time 1973, according to data compiled by Morgan Stanley.

They might not have to wait much longer, says the firm. The Bloomberg Barclays Intermediate Treasury total return index (BBIT) has seen similar streaks of futility on eight occasions over the past 35 years, and each time the gauge delivered a positive cumulative return over the following four quarters, Morgan Stanley data show.

Further, looking across all eight past instances, the BBIT has provided an average return of 6.32% over the subsequent year, according to the firm.

This data provides the foundation for Morgan Stanley's strategic recommendation, which involves purchasing intermediate-maturity Treasurys and holding them for three to four quarters. That means buying now and holding until the conclusion of fourth-quarter 2018 or first-quarter 2019.

Nervous about it? Morgan Stanley strategist Tony Small doesn't think you should be.

"Take comfort in knowing history is on your side," he wrote in a client note.

Of course, it must be noted that market conditions are not consistent over time. Investment environments are constantly shifting, so the question must be asked: Does historical precedent even matter in this situation?

Morgan Stanley hears those concerns loud and clear, and has tested scenarios to address the following two current drivers: (1) rising yields and (2) Federal Reserve rate hikes.

The firm is wise to address past rising-yield scenarios, since that type of environment theoretically leaves bond prices spring-loaded to move higher once the period is over, creating a bias of sorts. In order to test this, the firm isolated returns between 1973 and 1981 and found that returns were positive in each of the subsequent four quarters. So far so good.

Morgan Stanley also notes the strategy it's recommending has delivered positive returns during Fed tightening cycles in the 1970s, 1980s, 1990s, and 2000s. So much for that concern.

"Our analysis finds that positive total returns were experienced irrespective of market environment," Small said.

In the end, while the strategy floated by Morgan Stanley has been 100% effective in the past, its sample size of just eight instances makes it far from a sure thing. Investors considering it should still do their homework and use it in tandem with other fundamental market observations. But in a market that's been frequently starved for opportunity, it's an excellent starting point.

SEE ALSO: The stock market's 'secret medication for longevity' has vanished — and that leaves it highly vulnerable to a meltdown

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NOW WATCH: Wall Street's biggest bull explains why trade war fears are way overblown

• North and South Korea are about to embark on a series of talks aimed to de-escalate the tensions between the two nations.
• Such a de-escalation could have a major impact on markets, with Morgan Stanley seeing a jump of almost 15% in local stocks if peace is achieved.
• Even if tensions are pacified somewhat, Korea's benchmark KOSPI could rise as much as 8%.

With North Korea and South Korea making tentative steps towards a de-escalation of the decades long conflict between the two nations, some analysts have started to think about what a more liberal, open North Korea without nuclear weapons might mean for the world.

Writing this week, a team from Morgan Stanley's South Korean operation analysed the situation in the two nations ahead of upcoming talks, and argued that any continued de-escalation of tensions could end up being a major economic and market boon for Asia, and possibly the rest of the world.

Morgan Stanley lays out possible scenarios that could materialise in the aftermath of the upcoming talks, which it calls: 

• "Breaking the ice"—Relations between the two nations improve and some economic ties are re-established.
• "Becoming more engaged"— In this scenario, relations don't improve by a huge amount, but North Korea liberalises trade and the movement of people.
• "Full Union"— Seemingly the least likely scenario right now, this would see North and South Korea unify on economy and policy.
• "Uneasy equilibrium remains"— Highly possible, this scenario would see talks making little or no progress.

Under the first scenario, Morgan Stanley's team argues, the KOSPI — South Korea's stock exchange, and home to major brands like Samsung, Hyundai and LG — could see an upside of as much as 8%, largely because improved relations would make a conflict between the two, possibly involving Western intervention, far less likely.

"We would expect a partial allaying of the geopolitical discount, but sentiment would unlikely to reach a state of exuberance," the team of analysts wrote.

If talks end even better, and the Koreas end up in either of the "Becoming more engaged" or "Full Union" scenarios, the upside to the KOSPI could be as high as 15%, the report argues.

Here's what the authors say (emphasis ours):

"In a scenario where the market believes the Becoming More Engaged or Full Union scenarios look likely to come to fruition in a relatively short period of time, which would entail definitive and genuine progress in the same direction by the key stakeholders, we believe the market could strongly re-rate and possibly overshoot our expectations. We assume 10–15% upside to KOSPI in this scenario."

For a historical precedent, Morgan Stanley looks to the experience of the market after the fall of the Berlin Wall and the reunification of German in the early 1990s.

"When the Berlin Wall fell on November 9, 1989, it triggered significant excitement about the outlook for the economy on the back of potential reunification. The equity market rallied for around two months, with the DAX index climbing 28%," Morgan Stanley noted.

However, that jump ended up being a huge overreaction, with stocks falling sharply soon afterwards. It is possible a similar pattern could emerge in Korea, the team say.

"One of conventional behaviors observed from equity markets is that they have a tendency to exhibit sharp rallies on major catalysts without properly incorporating the risks and impediments into the measurement," they wrote.

"An event like the resolution of geopolitical risk related to North Korea could be such a catalyst, in our view."

Here's Morgan Stanley's chart, showing the initial jump in German stocks after the Berlin Wall fell, followed by their sharp drop soon after:

SEE ALSO: Here's what a war between North Korea and the US could do to the global economy

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NOW WATCH: Investors need to lower their expectations

• Morgan Stanley's Adam Jonas thinks Tesla and SpaceX could have a beautiful big data friendship.
• This is latest effort to craft a new plot twist for a company that has been fueled by its story.
• It remains to be seen whether the move will bolster Tesla shares, which have been sliding in 2018.

After soaring toward $400 a share last year, Tesla's stock has taken a huge hit in 2018, down 10%.

Tesla's volatility is nothing new, but there's a chance that it's actually different this time. The 2017 surge was all about the Model 3, Tesla's mass-market vehicle, which has been struggling to achieve production goals. And by struggle, we mean missed them by a country mile. 

Shares are now in the ballpark of $100 or more below some analyst's targets, and while Tesla could regain its momentum swiftly, next week's first-quarter earnings are expected to be extremely bad. Clearly, the stock slide is pricing that in, but the question then becomes, "Where does Tesla bottom out, for now?"

A level at $250 seems about right, although if the company slips to $200, we could be in look-out-below territory.

This means that Tesla bulls are in a pickle. Morgan Stanley's Adam Jonas, for example, has a target price of $376 and the equivalent of a "hold" rating on the stock. That target is pretty close to highest price Tesla achieved last year when it was rolling in positive news.

Now that the story has turned negative, Jonas (and other analysts with elevated target prices) are up against it. If they trim, they risk looking deluded, in the face of titanic ongoing losses. If they slash, they might as well throw in the towel and admit that Tesla snookered them.

The alternatives are to sit tight and hope for a Tesla rally in the future, on some sort of upbeat news or product announcement; or come up with a new subplot in the Tesla story.

A beautiful big data friendship

Jonas seems to be doing both. In a research note published Friday, he looked at Tesla through the lens of CEO Elon Musk's other company, SpaceX, which hasn't yet gone public and has posted far more good news than Tesla in the past four months, with the successful Falcon Heavy launch.

The result is a mashup of several Jonas themes: big transportation data, shared mobility and self-driving cars, and broadband satellites.

"Shared and autonomous vehicles will produce extraordinary amounts of data," he wrote. "The need for a cybersecure network is clear. SpaceX enters the broadband market in 2019. Does Tesla present itself as a large captive customer for SpaceX? Does SpaceX help solidify an important technological moat for Tesla?"

Embedded in those questions is the notion that automakers will become, at some future point, data brokers. This prospect excites car executives, largely because they smell free money: they figure that owners will gladly give up up their data, leaving the auto companies at liberty to monetize it. 

We need a new monopoly

Jonas' assumption is that as Tesla has shown no meaningful capability to convert its luxury electric-vehicle monopoly into profits — thereby vindicating its $40-billion-plus market cap — it needs some other source of outsize margins, one that it can control soups-to-nuts in order to take another crack at using monopoly power to reward investors.

This is where the idea that Tesla would be SpaceX "captive customer" is interesting. Why would Tesla actually pay SpaceX anything? Presumably, whatever SpaceX is selling, Tesla could obtain gratis. This would be a major competitive advantage.

Of course, it would also be a way to bake in a $100 or more of upside to Tesla's flagging shares — by morphing the Tesla story in a buzzy new direction. You'll recall that when the electric-car narrative was running out of juice a few years back and major automakers started to announce that they were bringing new EVs to market, Tesla added autonomous mobility to its story.

Dozens of EVs will be hitting the streets in the next few years, fighting for meager market share. That's a negative for Tesla, which has never really had to defend its huge slice of a small pie. On autonomy, Tesla isn't keeping pace. Both Waymo and General Motors' Cruise are on track to roll out self-driving ride-hailing services, while Tesla's Autopilot technology remains locked into an own-lease model.

Enter...data! Supercharged by the synergistic relationship between Tesla and SpaceX. That has to be worth something, right?

Whether that value is financially isn't important. It sustains the bull thesis. And with Tesla in a swoon, that's all that matters.

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• Morgan Stanley has done research into online cryptocurrency exchanges.
• The research shows that the majority of trading volume flows through exchanges registered in Malta.
• The United Kingdom has the highest number of legally registered exchanges but accounts for just 1% of trading volumes.

LONDON — The majority of cryptocurrency exchanges are based in the UK, but the vast amount of volume flows through the small island of Malta, new research shows.

Morgan Stanley analyst Sheena Shah and her team sent a note to clients this week examining cryptocurrency exchanges around the world. Exchanges are the venues on which cryptocurrencies trade and the biggest can see daily trading volumes in the billions.

The investment bank's research shows that the majority of volumes flow, at least nominally, through Malta. This is largely down to Binance, one of the biggest exchanges in the world, recently announcing plans to shift its legal headquarters to the small European island.

"The largest exchange called Binance announced intentions to set up headquarters there, so if we take that company out, Malta would be much further down the list," Shah and her team wrote.

"Binance said that it was moving away from Asia (currently registered in Hong Kong) due to more stringent regulation, especially from Japan. The third-largest exchange, OKEx, also recently announced that it was opening an office in Malta as the government markets itself as "Blockchain Island"."

While Malta dominates when it comes to volumes, the United Kingdom is actually the location of the largest number of exchanges — although the UK accounts for just 1% of global trading volumes, Morgan Stanley notes.

"Most are in the UK, Hong Kong and the US," Shah and her team note. "The three countries have relatively large financial centres and the US has a technology focus in Silicon Valley.

"There are six exchanges located in India but many are likely to have to shut down or relocate as this month the central bank ordered commercial banks to close accounts with exchanges."

Cryptocurrency exchanges have come under increasing scrutiny from regulators worldwide as more and more money as flowed into the sector over the last year. While some countries such as India and the US have sought to crackdown on the activity, countries and territories such as Switzerland, Gibraltar, and Malta have sought to attract the nascent industry to their shores.

"The blockchain and cryptocurrency industry is growing rapidly and can have economic benefits for a particular country through the creation of start-ups (good for jobs), research and development and financial transactions," Shah and team write. "Governments are having to consider their regulatory stance quickly."

"Defined but also attractive regulation makes an exchange decide to choose one country over another – a set of laws for companies to follow when handling digital tokens, customer assets, AML policies, taxes, etc. Regulatory certainty is part of the attractiveness for the companies so they can plan for the future as they know what to expect. Low taxes are a benefit."

SEE ALSO: A Goldman Sachs-backed tech company just bought a major crypto exchange for a reported $400 million

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NEXT UP: A South Korean gaming company is said to be in talks to buy Bitstamp, the world’s oldest bitcoin exchange

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NOW WATCH: A $700 billion investor dispels one of the market's most common myths — and explains what it means for your portfolio

• Morgan Stanley says US 10-year bond yields are unlikely to climb back to their recent highs.
• Recent global data points point to a subdued outlook for global growth, which will help spur bond demand.

Bond markets took centre-stage last week as benchmark US 10-year treasuries pushed towards the 3% mark.

But after reaching a high of 3.03% — just below the January 2014 mark of 3.05% — US 10-year yields almost immediately edged lower to close the week at 2.96%.

According to Morgan Stanley’s global rates strategists, that's "an ominous sign for the bond bears."

The analysts said multiple factors in global markets contributed to last week’s price action.

For starters, ECB President Mario Draghi was measured in his comments accompanying the central bank’s interest rate announcement on Thursday night.

The UK also had a bad miss on GDP while Japanese inflation data was soft. And the Bank of Japan extended the time-frame for inflation to reach its 2% target during Friday’s interest rate announcement.

And while recent data shows the US is now the only G10 economy with positive data surprises, Morgan Stanley said the underlying picture isn’t as rosy.

While hard data points such as GDP and durable goods orders have been solid, the soft data — such as consumer sentiment surveys — is starting to decline.

"Of note, soft economic data has been coming in weaker relative to expectations in recent months by more than it has since before the US presidential election," the analysts said.

According to Morgan Stanley, that points to a more cautious outlook on growth which will be accompanied by demand for safer assets such as bonds.

The bank’s global rates team has taken a decidedly bullish view towards US government bonds so far this year.

In January, they predicted US 10-year bond yields would fall to just 1.95% by the end of 2018.

They highlighted two key events on Wednesday which are likely to drive the price action in bond markets this week.

There’s the US Fed’s interest rate announcement, with no changes expected to the official cash rate.

And the US treasury department will outline its quarterly funding plans, with another increase in bond issuance expected to account for increased spending and the Trump administration’s December tax cuts.

"Without any surprises, we could see the Treasury market break to lower yields led by the long end of the curve," Morgan Stanley said.

SEE ALSO: The 10-year hit the key 3% level for the first time since 2014 — and it could have big implications for stocks

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• Sainsbury's is planning to merge with Asda in the UK to create a £13 billion supermarket giant.
• Walmart has owned Asda since 1999 but the low-priced retailer has been struggling recently.
• Walmart will own 42% of the combined group, take a $2 billion non-cash loss on the deal.
• The competition regulator could still scupper the deal.

LONDON — Sainsbury's, the UK's second-biggest supermarket, has reached a deal with Walmart to merge with Asda, the discount UK supermarket owned by the US retail giant.

News of the transaction was broken by Sky News on Saturday and all parties confirmed the deal on Monday.

Asda is valued at £7.3 billion ($10 billion) on a debt-free basis in the transaction. Sainsbury's will buy the bulk of shares from Walmart for £2.9 billion ($3.9 billion) and Walmart will receive a 42% share of the combined businesses. Walmart will remain a "strategic partner and long-term shareholder."

Walmart has owned Asda since 1999 when the US retail giant bought it for £6.9 billion ($9.5 billion). Recently Asda has struggled, posting its worst annual results since the takeover last year. Walmart said it expects to take a non-cash loss of $2 billion on the deal, although it cautioned that this figure could "fluctuate significantly due to changes in the fair value of the equity consideration to be received and changes in currency exchange rates."

Sainsbury's shares jumped 15% on Monday morning following news of the deal.

'This deal could easily unravel acrimoniously'

The deal will have to clear the UK's Competition and Market's Authority (CMA) but if approved would create one of the biggest companies in Britain, with a market value of around £13 billion ($17.8 billion) and annual sales of £50 billion ($68.7 billion).

Bruno Monteyne, an analyst with Bernstein, said in a note to clients: "Local competition, within 10 to 15 minutes' drive time, remains the key driver of store disposals. We think the potential gamble will depend on how the CMA treats discounter stores. In the past, they were largely excluded (as being too small and therefore not a comparable one-stop shop).

"57% of Asda stores have a large Sainsbury's store within 12.5 minutes drive time, leading to ~15% of store disposals. If they can convince CMA to include discounters, then it could be ~8%."

He added: "This deal could easily unravel acrimoniously if the CMA sticks to its old rules and parameters. At 13% store disposals, the deal would stop being accretive."

Both the Asda and Sainsbury's brands will be retained. Asda is one of the lowest priced major UK supermarkets and generally targets working-class customers in the North. Sainsbury's targets middle-class customers in the South East.

'A unique and bold opportunity'

Sainsbury's touted cost savings of £500 million ($687.7 million) in synergies but said it will not close stores as a result of the deal. It said the greater scale of the business post-merger would allow it to invest in lowering prices. The supermarket said it expects to lower prices by up to 10%.

Sainsbury's chairman, CEO, and CFO will lead the combined business. Sainsbury's chairman David Taylor said in a statement: "As one of the largest employers in the country, the combined business will become an even greater contributor to the British economy.

"The proposal will bring together two of the most experienced and talented management teams in retail at a time when the industry is undergoing rapid change. We welcome Walmart as a significant shareholder and look forward to working closely with them."

Walmart International CEO Judith McKenna called the deal a "unique and bold opportunity, consistent with our strategy of looking for new ways to drive international growth."

UBS and Morgan Stanley advised Sainsbury's on the deal. Rothschild and Credit Suisse advised Walmart.

The mega-merger comes amid a frenzy of deal activity in the UK supermarket sector. Last year Tesco, the UK's biggest supermarket chain, won CMA approval for its £3.7 billion ($5 billion) merger with wholesaler Booker and Sainsbury's bought catalogue retailer Argos for £1.2 billion ($1.6 billion) in 2016.

SEE ALSO: Thousand of jobs at Asda are at risk as supermarkets swing the axe

DON'T MISS: Britain's 'Big Four' supermarkets are bleeding market share to Lidl and Aldi

NEXT UP: UK retailers are worried Brexit could lead to empty shelves

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NOW WATCH: Investors need to lower their expectations

• Morgan Stanley is planning to increase junior banker salaries by up to 25%, Bloomberg News reports. 
• It is also looking to more quickly offer young staffers promotions, the report found. 

Morgan Stanley is planning to raise salaries for junior bankers by as much as 25%, and offer them quicker promotions, Bloomberg reported, citing people familiar with the matter.

The 20 to 25% pay raise for investment-banking associates will be the first in almost four years, and may differ by region, Bloomberg reported.

Analysts will be promoted to associate in two years rather than three, the report said, citing a memo sent to staff.

Notably, the New York bank had a killer first quarter. The bank reported adjusted earnings of $1.45 a share, a 45% increase from last year and well ahead of analyst expectations of $1.28 a share.

Particularly striking was the bank's results in fixed-income, a business unit in trading it once left for dead. The bank posted its best results in the unit in three years. In 2015, it took an axe to fixed-income, cutting 25% of its workforce, replacing its leadership, and slashing bonuses.

The move to increase pay for junior bankers echoes something its arch rival Goldman Sachs did three years ago when the bank said it would start promoting top investment-banking analysts to associates in two years, rather than three. 

It also comes on the heels of a hot environment for dealmaking.  Global M&A volumes during the first three months of 2018 were at their highest level ever, totaling $1.2 trillion, according to Thomson Reuters. 

(Reuters' reporting by Aparajita Saxena in Bengaluru)

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