Investing.com -- JPMorgan was downgraded by Oppenheimer to Perform from Outperform, as the bank’s valuation now aligns with the firm’s fair value model.
This comes after an extraordinary post-election rally that saw the KBW Bank Index (BKX) surge by 10.7% on November 6, far outpacing the broader S&P 500’s 2.5% gain.
Oppenheimer noted the rally brought the BKX’s year-to-date gain to 39.1%, compared to 24.1% for the S&P 500, making the commercial banking sector fairly valued but not overvalued.
Oppenheimer notes that JPMorgan’s current trading level, however, limits its potential for further outperformance.
“It is hard to imagine the stock outperforming, especially from this level, when its key revenue line is declining as others rise,” said Oppenheimer, referring to the bank’s guidance for lower net interest income (NII).
While the election results boosted market sentiment, Oppenheimer highlighted five key factors shaping its cautious stance on banks. Among them is skepticism over significant regulatory relief for commercial banks.
Although some changes, like the potential weakening of Basel 3 capital rules and a muted Consumer Financial Protection Bureau (CFPB), are anticipated, the overall regulatory environment is unlikely to ease dramatically.
Oppenheimer is more optimistic about a potential surge in mergers and acquisitions (M&A), particularly with the expected removal of FTC Chair Lina Khan.
However, it remains cautious about broad macroeconomic implications, stating, “It’s tricky to base investment decisions on macro views because no one really knows what the macro-economy will bring.”
Despite the downgrade of JPMorgan, Oppenheimer remains bullish on Citi (C), Goldman Sachs (GS), and Jefferies Financial Group (JEF), citing their upside potential in an M&A-driven environment.