Analysts at HSBC have expressed concerns over the risk-reward profile of Goldman Sachs (GS, Financial) and Morgan Stanley (MS) stocks following a recent surge in banking shares. They caution investors against expecting an investment banking "super cycle" to significantly boost stock prices. Led by Saul Martinez, the analysts note that while investment banking fees might rise, their estimates for Goldman Sachs and Morgan Stanley already account for a roughly 30% increase by 2024.
The market's expectations are seen as overly optimistic, leaving room for potential disappointment. Consequently, the analysts have downgraded their ratings for both Goldman Sachs and Morgan Stanley from "outperform" to "hold." Following the U.S. presidential election, investor anticipation of policies such as tax cuts and deregulation has fueled economic growth expectations, driving banking stocks higher. Since November 6, the KBW Bank Index has surged nearly 10%, with Morgan Stanley and Goldman Sachs rising 13% and 14%, respectively.
Despite the downgrade, Saul Martinez remains more optimistic about the fundamental outlook for these banks compared to before. He has raised earnings per share expectations for both banks due to higher investment banking, asset, and wealth management fees, as well as increased buybacks.
While some analysts, including Mike Mayo from Wells Fargo, view this as a "watershed moment" with potential for a "super cycle" in capital markets, Martinez is not alone in his cautious stance. Recently, Oppenheimer analysts also downgraded JPMorgan Chase (JPM) from "outperform" to "perform," warning of a potential decrease in net interest income following the market rally.
