Major Banks Face Lack of Catalysts Through Upcoming Earnings, But Strong Medium-Term Outlook, Morgan Stanley Says

01:00 PM EDT, 09/25/2026 (MT Newswires) -- Major US banks are likely to see a lack of catalysts through the upcoming earnings season, with capital markets activity seen remaining range-bound until the midterms election, though the medium-term outlook for the group is optimistic amid "strong" fundamentals, Morgan Stanley said in a note e-mailed Friday. Relative to a robust performance in the first half of the year, capital markets revenue growth has slowed, with concerns around higher funding costs arising following a "hawkish" Federal Reserve and a renewed focus on cash optimization tools driven by agentic artificial intelligence, the brokerage said in a note to clients. "We see a lack of catalysts at (third-quarter) earnings, with limited surprises and slower capital markets through the midterms," Morgan Stanley wrote. "That said, we believe stocks are attractive post the recent sell-off, particularly as finalization of capital rules should accelerate capital deployment in 2027." Last week, the Fed raised its benchmark lending rate for the first time since July 2023 and signaled another hike later this year. Morgan Stanley said it likes State Street (STT) heading into the upcoming earnings season and recommends Citigroup (C), Bank of America (BAC), and Fifth Third Bancorp (FITB) following a recent pullback in stocks. The brokerage is "more optimistic" on the broader group in the second half of the fourth quarter and into next year, citing "strong" fundamentals and continued loan growth, among other factors. Morgan Stanley recommended that investors "use the recent dip to position for a stronger" 2027, according to the note. "A supportive macro backdrop, near-record pipelines, strategic imperatives among corporates to transact with sponsor recovery (are) still to come, and an easier regulatory backdrop for deals, should all drive strength over the next two years," the brokerage said. "Most importantly, a multiyear AI investment cycle across data centers, chips and compute, power generation, cooling, servers and storage, and AI adopters should be a multiyear tailwind for revenues." The brokerage expects double-digit growth in the earnings per share for the group over each of the next two years. "We believe the finalization of the new proposals by year-end could unleash more capital deployment in 2027, driving stronger capital markets revenues, loan growth and capital return over the next two years," Morgan Stanley wrote. "Rate hikes, along with a higher belly/long end of the curve are net positive for the group." Price: 180.77, Change: -0.32, Percent Change: -0.18