Investing.com -- Investment banking is predicted to undergo a slowdown in the first half of 2025 due to increased market volatility and economic uncertainty, according to a note from Morgan Stanley Research released on Thursday. This volatility is causing apprehension for CEOs, boards, and sponsors who are planning to negotiate and launch deals.

The note also forecasts that capital markets activity will remain subdued for the first half of the year, with a more significant rise anticipated in the third quarter of 2025. The market conditions at the beginning of the year, which were robust, are now being impacted by the recent market pullback and heightened volatility.

In recent months, investment banking activity had seen an uptick, buoyed by the business-friendly approach of President Donald Trump’s administration. However, U.S. mergers and acquisition activity in the first two months of 2025 has experienced a slowdown. As of Friday, only 1,603 deals have been signed, marking the slowest pace by volume since 2009, as per data from Dealogic.

The note also presented a bear case scenario, predicting a potential downside of 24%-47% among Midcap Advisors and a 9%-27% downside among Money Center Banks . This slowdown and potential downside are indicative of the challenges facing the investment banking sector in the face of volatile markets and economic uncertainty.

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