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Bank of America will lag its peers in a capital markets recovery cycle, Morgan Stanley predicted. Analyst Betsy Graseck downgraded the bank stock to equal weight from overweight, but raised her price target to $55 from $48. This updated forecast is approximately 18% above Friday’s close. BAC YTD mountain BAC YTD chart Shares of Bank of America have rallied 39% this year. While Bank of America will benefit from a capital markets rebound, Graseck also shared her preference for banks that are more skewed to capital markets, since those names will likely see more upside. In 2026, she estimated that investment banking and trading would only account for 27% of revenue at Bank of America, but 32% and 68%, respectively, at Citi and Goldman Sachs. “In a bear case, BAC is more credit exposed vs. capital markets pure plays,” the analyst wrote. “In a bull case with rising 10 year yield, we expect unrealized HTM [held-to-maturity] losses to rise above current $86B levels which could impact stock performance.” The downgrade comes as a second Trump administration is expected to ease regulations across industries, including finance. While Bank of America could get a boost from that, other banks tied more closely to deal-making and capital markets may get a bigger one. On a positive note, Graseck pointed toward more net interest margin ahead alongside a compelling growth thesis as catalysts for the stock. “BAC’s long held strategy of responsible growth comes with tighter underwriting standards and strong credit quality, as evidenced by lower loan loss ratios than peers under the severely adverse case in the annual Fed stress test,” she wrote. In the same note, Graseck upgraded Bank of New York Mellon and State Street to overweight ratings from equal weight. The analyst pointed to the former’s operating leverage as its “North Star,” while highlighting potential net interest margin expansion as a catalyst for the latter. The stocks have respectively rallied 55% and 27% in 2024.