Fed’s Easing Shift Boosts Investment Banks: Morgan Stanley, Evercore & Moelis Primed

Current and forecast shifts in Federal Reserve policy from tightening to easing are creating a more favorable environment for investment banking firms. Lower rates tend to reduce financing costs for clients, increase appetite for M&A, IPOs, debt issuance, and corporate refinancings, and support stronger equity and fixed income issuance. This has lifted non-interest income for banks recently, particularly in firms with strong capital markets operations. [1][21][16]

The stock-specific recommendations—Morgan Stanley, Evercore, and Moelis—stood out in the primary article for several reasons: high growth in advisory and underwriting divisions; effective geographic expansion; diversified revenue streams; and strong forward earnings estimates. For example, Evercore has seen its share price rise ≈63% over six months and is expected to report year-over-year earnings growth of +34.5%. Moelis is expected to grow earnings by nearly +38% in 2025. Morgan Stanley combines stability via wealth and asset management with upside in advisory and capital markets. [1][3]

Larger universal banks are gaining incentive from the pick-up in dealmaking and trading. Goldman Sachs expects M&A and underwriting momentum to continue into 2026, citing strong deal pipelines. Citigroup and Wells Fargo are also benefiting from rising fee income and revived capital markets activity. [14][16][21]

However, rate cuts present trade-offs. While they stimulate demand for financing and higher deal activity, they tend to compress earning margins on interest-earning assets and might pressure net interest income, especially for banks that rely heavily on traditional lending. In addition, deal flow can be volatile and sensitive to regulatory shifts, geopolitical risk, and macroeconomic shocks. Valuation multiples for investment banks are also not cheap—some portions of upside may already be priced in. Open questions: how aggressively the Fed will cut; whether inflationary pressures will force a protracted hawkish posture; and how credit risk and loan delinquencies behave in a lower rate environment.