MarketsJun 30, 2026
Big Bank Stocks Have Had a Historic Run. Now Valuations Are Driving Investors Elsewhere.
Market Rotation
Rhea Lobo
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Few corners of the market have rewarded investors like big banks. The KBW Bank Index has climbed nearly 130% over the past three years, with Goldman Sachs, Morgan Stanley, JPMorgan Chase, and Bank of America all hitting fresh all-time highs this month. Now one Wall Street firm says the easy gains may be behind them.
On June 30, Oppenheimer analysts Chris Kotowski and John Coffey downgraded Goldman Sachs and Morgan Stanley to Underperform while cutting Bank of America and Citigroup to Perform, marking a broad shift to a more cautious stance on the sector.
Oppenheimer believes much of the upside has already been priced in. Commercial banks are trading near the upper end of their historical valuation ranges, while investment banks sit well above long-term averages, leaving less room for further gains if market conditions soften.
The firm raised its Q2 2026 estimates for the sector, citing stronger-than-expected trading performance.
Kotowski and Coffey are not calling for a sharp downturn. Instead, they describe investment banking as a mature, cyclical business and argue that investors should reduce exposure before the cycle shows obvious signs of weakening.
"While the cycle may well go on for another 12-18 months or more, we'd rather not wait around for the warning signs to appear," Kotowski and Coffey wrote.
Layered on top of the valuation concern is a shifting rate environment. Since the Federal Reserve began easing in 2024, large banks have benefited from a range that let them charge solid loan rates without choking off borrowing.
JPMorgan saw loans grow 11% and net interest income rise 9% year over year in its most recent quarter. Wells Fargo and Bank of America posted similarly strong numbers.
The Fed also became more hawkish in June. A majority of policymakers now expect rates to increase by about 25 basis points in 2026, with the median projection rising to 3.8%. In December 2025, the median forecast still pointed to a rate cut. Higher rates for longer could slow loan demand and put pressure on credit quality, weighing on bank earnings.
For now, analysts at Motley Fool still view JPMorgan, Bank of America, and Wells Fargo as buys heading into earnings season. But the rate trajectory adds uncertainty that was absent six months ago.
Oppenheimer is steering investors toward a different part of the sector. Rather than large investment banks, the firm prefers commercial banks that are earlier in their recovery, particularly US Bancorp and PNC Financial Services, both of which carry Outperform ratings.
Oppenheimer also sees opportunity in alternative asset managers. It favors Ares Management, Blackstone, and KKR, all of which have lagged this year as investors worried about private-credit exposure and elevated redemptions from flagship funds. The firm believes those concerns have become overdone, creating an attractive entry point.
The idea is to rotate out of stocks where expectations already look stretched and into areas where valuations still leave room for upside. Whether that call is early or timely should become clearer over the next few weeks as big banks report second-quarter earnings.
