The banking giants that “took the lead” in earnings season have been hammered one after another! Damo lowered the outlook for major US banks to “neutral”

The Zhitong Finance App learned that Wall Street financial giant Morgan Stanley downgraded stock ratings for US investment banking giant Goldman Sachs (GS.US) and the private banking and wealth management leader Northern Trust (NTRS.US) stock ratings for the latter to “reduced holdings,” while Damo raised the stock rating of US commercial banking giant Bank of America (BAC.US). More importantly, Grand Morley adjusted the overall outlook for the major US banking sector from “attractive for investment” to “neutral,” which also means that US banking giants continued to be hit by Trump's “tariff stick” before the upcoming earnings season. The KBW Bank Index, which measures the US banking industry's stock price benchmark trend, fell more than 13% last week and nearly 20% this year.

“In a situation where Trump's imposition of tariffs on the world far exceeds market expectations, trends in global trade developments and changes have caused our benchmark forecast to shift to a significant slowdown in global GDP, and the risk of a recession scenario where US stocks fall into a bear market can be described as rising sharply.” Analysts Betsy Graseck and Ryan Kenny from Damascus said in a newly released research report.

Earlier, another Wall Street giant, Goldman Sachs, released a new research report on April 6, showing that a research team led by chief economist Jane Hazus drastically raised the probability of a US recession in the next 12 months to 45%, a sharp increase of 10 percentage points from the previous forecast. The report also lowered the GDP growth forecast for the fourth quarter of 2025 to 0.5%, which is directly lower than the original forecast.

In the report, Damo downgraded the rating of investment banking giant Goldman Sachs from “holding” to “holding”, downgraded the Northern Trust stock rating from “holding” to the most negative “reduced holdings” rating, and downgraded the outlook for large banking sectors including J.P. Morgan Chase, Morgan Stanley, Goldman Sachs, and Bank of America to “neutral”. There is no doubt that the banking giants leading the way in the Q1 US stock earnings season that will begin this Friday can be called “leading the pack.” Drastic cuts.

The performance of Wall Street giants who “took the lead” in the US stock earnings season is critical to the global stock market

On Monday, Trump flatly refused to loosen tariffs, and the “disastrous collapse in financial markets” continues to unfold. When the Asian stock market opened on Monday, it was hit hard by a rare historical level. After the three major US stock index futures plummeted by more than 10% last week, the sharp decline trend continued on Monday, which also showed that the “global stock market tragedy” where the global stock market evaporated more than 5 trillion US dollars in market value last week is far from over.

The Asian stock market can be described as experiencing another “Black Monday” recorded in the annals of financial development. The Japanese stock market once triggered a “meltdown” mechanism, and the MSCI Asia Pacific Index (MSCI Asia Pacific Index) once plummeted by 8% in the intraday period, setting the biggest one-day decline since October 2008. The Hang Seng Technology Index, which covers many tech giants such as Tencent, Alibaba, Meituan, and SMIC, fell as high as 17% in the intraday period.

The new US stock earnings season officially kicks off this Friday. Wall Street financial giants such as J.P. Morgan Chase (JPM.US), Wells Fargo (WFC.US), Morgan Stanley (MS.US), and BlackRock (BLK.US) will “take the lead.” The performance of financial giants in these businesses, which cover investment banking, wealth management, and personal and institutional banking, and management's outlook on future performance will have a major impact on US stocks and even the global stock market. Especially at a time when Trump's “tariff stick” violently suppresses risky asset trends such as global stocks, the market expects Wall Street financial giants, especially banking leaders, to begin a new round of US stock earnings season with growth performance exceeding expectations, which in turn will drive a huge rebound in US stocks and even global stock markets.

Under the heavy pressure of Trump's tariffs, the recovery of the US capital market may encounter resistance

The latest report released by Damo, which lowered the outlook for the major US banking sector, added: “Under Trump's tariff policy that far exceeds market expectations, we expect a slowdown in US economic growth combined with rising expectations of economic uncertainty, which will significantly delay the recovery of the US capital market, gradually slow down loan growth, and make the net write-off rate of consumer and commercial loans slightly higher than our previous cyclical average, reflecting the current unemployment rate.”

Analysts at Morgan Stanley also anticipate that a new era of banking supervision, which will continue for several years starting this year, is about to begin, but they have not adjusted their expectations for the scale of share repurchases.

The Dama analysis team drastically delayed expectations for the recovery process of the US capital market compared to the normalization of GDP from 2026 to 2028. Damo expects that due to the huge potential risks brought about by rising US import costs and inflation, the credit costs of commercial and consumer loan portfolios will increase significantly, and the general net interest spreads of large banks will narrow drastically.

In this newly released research report, Damo lowered the 2025/2026 median earnings forecast for major US banks by 4% to 8% per share.

“In light of recent sharp market fluctuations, it is clear that revenue prospects related to investment banking and wealth management fees need to be drastically lowered. Our predicted median year-on-year revenue growth rate for 2025 has declined from 4% to 3%. Therefore, we expect banking management to send a similar message, and the loan growth guidelines will also be lowered slightly at that time.” Damo said in a research report.

Damo downgraded the stock rating of Goldman Sachs, a leader in global investment banking, from “holding neutral”, mainly due to the bank's biggest revenue exposure to the investment banking business, which may lead to a sharp decline in capital market revenue expectations; in addition, the rising risk of a recession in the US economy may shrink the value of Goldman Sachs's Apple Card portfolio. As for Goldman Sachs's target price, Damo drastically lowered Goldman Sachs' target price from $659 to $558 within 12 months. Goldman Sachs shares fell more than 5% to around 447 US dollars at the beginning of the session on Monday.

Regarding Northern Trust, Damo's research report stated that “the market correction means that the possibility of the agency achieving a 105-110% fee-to-trust fee ratio is drastically reduced,” and its rating was downgraded from “neutral” to “reduced holdings.”

“We forecast a 2 percentage point decline in operating leverage in 2025, an increase of +2 percentage points in total revenue (+5/+1 percentage point increase in net interest income/non-interest income, respectively), and an overall expenditure increase of +4 percentage points (compared to the +5 percentage point guideline).” Damo pointed out in the report. Damo's target share price for Northern Trust within 12 months was revised from $132 to $95.

On the other hand, Bank of America was upgraded by Dama from a “neutral” rating to an “overweight” rating due to valuation factors.

“Bank of America is the currency center bank with the worst stock price performance so far during the year, as the market is concerned that the Fed's interest rate cut and the downward movement in the middle of the yield curve will suppress its net interest spread expansion narrative. We predict that Bank of America's net interest spread will increase from 1.96% in 2024 to 2.08% in 2025 and 2.15% in 2026, as it will benefit from the increase in net interest income brought about by the termination of BSBY of $1.6 billion between the fourth quarter of 2024 and the fourth quarter of 2026, as well as the expiration of the nominal principal amount of $15 billion in 2.5% fixed-rate swap contracts in the second half of 2025.” Dama analysts said, adding that these benefits will be realized regardless of whether the Federal Reserve will announce interest rate cuts or not.