A Downgrade Wave Says Bank Stocks Are Priced for Perfection Ahead of Q2 Earnings. Here's the Bear Case.

Oppenheimer downgraded Goldman Sachs and Morgan Stanley from perform to underperform, warning that both investment banks are priced for perfection ahead of Q2 earnings. The firm points to valuations stretched by elevated investment banking revenues following the SpaceX IPO and strong Q1 2026 results.

The bear case hinges on sustainability risk. Oppenheimer flags two potential headwinds: higher bond yields that could dampen capital markets activity, and delays in anticipated AI-related IPOs that have buoyed Wall Street's revenue expectations. The firm argues that current stock prices leave no room for either scenario.

Instead of GS and MS, Oppenheimer is steering clients toward super-regional banks and alternative asset managers, which it sees offering greater upside potential at current levels. The rotation call suggests the firm views risk-reward as skewed to the downside for bulge-bracket banks entering earnings season.