(Bloomberg) -- JPMorgan Chase & Co. has been the best performing big bank stock since the Federal Reserve started hiking interest rates more than two years ago. But as the US central bank begins to unwind those moves, Morgan Stanley says it’s time for investors to wait before they buy more shares.
Analyst Betsy Graseck downgraded the bank led by Jamie Dimon to equal-weight from overweight, a rating she’s had on the stock since December 2022. Graseck also adjusted her price target on the stock, lifting it slightly to $224 — implying a 6% increase from Friday’s close. JPMorgan shares slipped as much as 2.5% on Monday.
“We see less positive surprises ahead for JPMorgan following a strong run over the last two years,” Graseck wrote in a note, adding that there is more room for positive net interest margin surprises elsewhere in the banking sector.
The downgrade comes as investors across Wall Street try to chart the Fed’s path forward after it unleashed a larger-than-expected rate cut last month and left the door open for more outsized moves this year. While JPMorgan shares largely outperformed during the tightening cycle, that leaves the stock with less room to run compared to peers, according to Graseck.
“While we still have 6% upside to our JPMorgan price target, our overweights have more upside at 12-39%,” she said. With the stock currently trading at 2.2 times tangible book value, “the risk reward appears more balanced at current valuations.”
JPMorgan shares have gained 24% this year compared to a 19% rise in the KBW Bank Index and a 20% jump in the S&P 500 Index. The stock is up nearly 60% since the Fed started increasing rates in March 2022, while the gauge of banking peers has fallen more than 9% since then.
Instead, Graseck believes that faster rate cuts will be a positive for net interest margins at mid-cap lenders. She boosted her ratings on Cadence Bank, US Bancorp and Zions Bancorp. That follows an industry-wide rating upgrade in early August, which saw Morgan Stanley lift its view on mid-cap banks to attractive from in-line.
“Rate cuts are more positive for mid-cap banks, which bore the brunt of higher funding costs when rates rose,” Graseck said.
(Updates stock moves in paragraph two.)
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