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Key Takeaways
- Morgan Stanley analysts cut their outlook for large and mid-capitalization bank on Monday, stating that President Donald Trump’s tariffs increase recession risks.
- Morgan Stanley analysts reduced their sector view on large-cap and midcap banking stocks to "in-line" from "attractive."
- The analysts downgraded Goldman Sachs to "equal-weight" from "overweight."
Analysts at Morgan Stanley on Monday cut their outlook on large- and mid-capitalization banks to "in-line" from "attractive," writing that President Donald Trump's tariffs are increasing recession risks.
Morgan Stanley’s analysts led by Betsy Graseck noted in their note about large-cap banks that recession risks had increased, even though their base scenario is for a “significantly” slowdown in gross domestic products (GDP). The slower GDP, combined with increasing economic uncertainties, will “push out” the nascent rebound in the capital markets and slow down loan growth.
They said that American consumers, who drive U.S. GDP growth, “do not have savings levels to absorb these tariffs and continue spending at pre-tariff levels.”
Analysts upgrade Bank of America, downgrade Goldman Sachs
Analysts also downgraded Goldman Sachs from “overweight” to “equal weight”, saying that the Wall Street powerhouse was most exposed to revenue from investment banking, which is more susceptible “to recession risks and deteriorating markets conditions” than traditional commercial banks. They upgraded Bank of America to “overweight” and “equal-weight”, citing cheap valuations.
Goldman Sachs shares dropped by nearly 1% intraday. Bank of America shares are up 2.7%.
Morgan Stanley analysts, led by Manan Gosalia, downgraded midcap bank shares, citing “higher and faster than anticipated tariffs that raise recession risks and weigh on loan growth, and in turn, forward EPS, and multiples.”
