The banking sector has made an impressive comeback this year on the back of rising financial and capital market activities amid bullish market sentiment. However, Wall Street analysts expect Morgan Stanley (NYSE:MS) and U.S. Bancorp (USB) to underperform their peers in the coming weeks, arguing that the current valuation of these stocks looks unreasonable. Read on.While the near-zero interest rate environment has remained unchanged due to worries over the pace of economic recovery, the banking sector has been making a solid recovery on the back of increasing financial transactions and capital market activities.
As investors scurried to react to news of the pandemic, and companies required help raising cash or hedging business risks, capital markets businesses helped large Wall Street banks navigate the pandemic.
However, Wall Street analysts recently downgraded Morgan Stanley (MS) and U.S. Bancorp (USB) because they anticipate shares of these megabanks will underperform their peers in the near term. They posit that these two stocks look overvalued at their current levels.