🎙️ Disaster, Inc.

Bank stocks are flying. The financial sector hit a fresh all-time high Wednesday and has outperformed the broader market this year.

Strong financial earnings (more below) helped power the S&P 500. Suddenly, 6,000 is within striking distance.

When accounting for reinvested dividends, the U.S. stock market has now been up over 70% since the index’s Oct 13, 2022 bottom of 3,492.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Wall Street banks post big profits

• Disaster, Inc. — the weather is bad, but the profits are good

This, and more, in just 5 minutes to read.

Chart(s) of the Day

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In The News

🏦 Wall Street Banks Post Big Profits to Kick Off Earnings

Folks, it’s been a nice week of earnings for big banks. Trading results and a rebound in investment banking have investors in the financial sector sitting pretty well. 

The latest beneficiary: Morgan Stanley, which just posted a record quarter in wealth management, one of Wall Street’s most profitable business units. 

Getting richer: Client assets at Charles Schwab and the wealth divisions of six large U.S. banks grew $5 trillion in the last 12 months through September, a 23% jump. The rising stock market elevated client balances and encouraged new customers to invest with firms. Some banks have attracted wealthy clients with welcome bonuses and new products. 

Strong tailwinds: The wealth management business is relatively consistent and requires less regulatory capital than other business units. It’s also very profitable. For instance, Morgan Stanley’s wealth unit recorded a 37% return on tangible equity in 2024, triple that of its investment banking arm.  (Tangible equity measures the efficiency with which a company operates and utilizes its tangible assets to generate long-term profits.)

• One analyst told clients Wednesday, “It is clear that the industry is benefiting from strong tailwinds.”
  

• All big banks that reported in the past week reported strong gains, just as the S&P 500 climbed to new heights and interest rates were reduced for the first time in over four years. 

Morgan Stanley made $20.9 billion of wealth revenue in the first nine months of 2024, while Bank of America’s wealth revenue grew 18%. Schwab said flows into its high-end wealth business grew 65% this.

“Our ultra-high-net-worth clients have been a particular area of focus,” Schwab’s CEO told analysts. The firm is also introducing a new alternative investment platform for wealthy clients with over $5 million in assets. 

Why it matters:

Continuously rising markets means people are richer than ever before, and wealth management is among the greatest beneficiaries. 

Millionaires make up over 1.5% of the adult population, per UBS. The number of U.S.-dollar millionaires could jump by 50% over the next five years. As more Americans grow wealthier, they become more of a target for wealth managers, many of whom earn their salaries based on a combination of fees and commissions on investments and financial products.

Goldman Sachs — which topped estimates for third-quarter profit and revenue on strong results from its stock trading and investment banking operations — also said it will add wealth advisers over the next few years and bolster lending to rich clients. Ditto at Citigroup, whose wealth revenue grew 9% to $2 billion after a 24% jump in client assets. Its CEO called the trend “a good start to realizing the potential we have here.”

Read more

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✍️ Valuing the best stock of the past three decades with Shawn O’Malley

💡 The price of progress: Venture into the unknown

✈️ United shares head for pre-pandemic high after airline forecasts strong finish to 2024, plans buyback

☢️ Making sense of Google's nuclear-powered AI ambitions

🚘 EV sales are rising in the US and nearing an important turning point

🌀 Natural Disasters Make a Mess, and Private Equity Is There To Profit

It’s no secret that natural disasters are rising—hurricanes in the South, wildfires in California, flooding in the Carolinas and Northeast. But rather quietly, the $200 billion disaster-restoration industry has become a target for private equity investors eager to cash in on the rising demand for cleanup services after catastrophic events.

Small, local businesses no longer dominate the sector. Now, the global remediation market could surge from $70 billion in 2024 to $92 billion by 2029. Investors view hurricanes not merely as calamities but as lucrative opportunities. For instance, Hurricane Helene caused ~$5 billion in commercial property damage, which means more profit opportunities. 

• “This industry is recession-proof and keeps growing,” the CEO of Exit Strategies 360 said. 

Mold boom: The rise in natural disasters has led to a boom in mold remediation, now a billion-dollar business. The shift from plaster to drywall in homes has created ideal conditions for mold growth, and some reports indicate that 46% of homes showed mold contamination after Hurricane Katrina. 

• Mold remediation can be costly; a typical job runs around $3,000, while entire home clearances can reach up to $30,000.

Zoom out: Restoration businesses landed on the private equity radar after Hurricane Katrina in 2005 and the financial crisis in 2008, then grew steadily after more disasters. Private equity firms are scooping up mom-and-pop businesses—just as they are HVAC businesses, as we covered Monday. 

• Even Blackstone is growing its footprint after more recent high-profile disasters.

Why it matters:

Many restoration firms earn between $1 million and $10 million in annual revenue from “large-loss work,” such as replacing a library’s roof after a snowstorm. 

But the trend isn’t without challenges. The industry often relies on temporary laborers who face delayed payments and hazardous working conditions. Given the work's precarious nature, some restoration companies face all kinds of violations. (The disaster-restoration workforce is primarily immigrants, formerly incarcerated people, and U.S.-born people of color.)

A changing climate: The looming threat of climate change adds another layer. A senior researcher from the Private Equity Stakeholder Project mentioned the inevitable impacts of climate change: “A lot has been coming out for decades about the effects and impacts of climate change... they know that this climate disaster is ramping up and is coming.”

Bottom line: As natural disasters become more frequent and severe, the restoration industry is positioned for explosive growth. It’s no wonder private equity is all over it. 

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Quick Poll

On Monday, we asked: Would you encourage younger generations to consider careers in skilled trades?

— Almost nine in 10 respondents said they would encourage younger generations to consider careers in skilled trades. “It is always in demand and can’t be exported to overseas,” one said. “The work is fulfilling and has much less stress than other jobs.” Added another investor: “Skilled labor will probably be much more resilient to being replaced by AI in the future.”

— “Supply and demand. You can already see the shift. Too many Engineers and too few plumbers, and guess who will be paid more,” one wrote. Another said, “I’ve been in IT for 10+ years, and it’s starting to feel hollow. With a skilled trade, you help real people directly, and make decent money.”

— On the other end of the spectrum, some respondents offered reasons to reconsider. “If you can get a great job outside of the trades that's the way to go. Money-wise, yes it's good, but there's a side no one talks about: crawling in attics while its 100 degrees, breathing in toxic particulates (sawdust, concrete, fiberglass, silicone, asbestos, etc...), long hours, degradation of your body, fatigue (no energy when you get home), and so on. ”

See you next time!

That's it for today on We Study Markets!

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