Oppenheimer & Co. issued a notable downgrade of major U.S. investment banks on Tuesday, lowering Goldman Sachs Group Inc. and Morgan Stanley to “underperform” from “perform,” according to a Reuters report. The brokerage also cut Citigroup Inc. and Bank of America Corp. to “perform” from “outperform.” The moves reflect a belief that current valuations leave limited upside despite a favorable operating backdrop.
In a research note, Oppenheimer analysts recommended that investors sell large-cap investment bank stocks and redeploy capital into alternative asset managers. The firm specifically highlighted Ares Management Corp., Blackstone Inc., and KKR & Co. Inc. as preferred picks. Shares of alternative managers have lagged the broader market this year as concerns mount over private-credit exposure and potential redemption pressures from flagship funds. However, Oppenheimer views the selloff as overdone.
“We suggest that investors maintain their financial exposure by re-deploying the funds raised into the Alts,” Oppenheimer wrote. The downgrade sent Morgan Stanley shares down 1.4% in early trading Tuesday, while Goldman Sachs fell about 1%. Citigroup and Bank of America each declined roughly 1.3%.
The brokerage acknowledged that the operating environment for investment banks remains favorable, with no immediate catalysts to derail growth or returns. Yet it argued that the sector has entered the later stages of an expansionary cycle. “While the cycle may well go on for another 12-18 months or more, we'd rather not wait around for the warning signs to appear, and thus particularly in the case of the investment banks, we are more inclined to take the money and run,” the analysts stated.
The recommendation to rotate into alternative asset managers comes amid a broader trend of growing advisor proficiency in alternatives, as highlighted by a recent Brookfield survey. That report found that portfolio integration of private assets has accelerated, with advisors doubling their comfort levels in structuring alternative allocations. Oppenheimer’s call suggests that the current discount on alternative manager stocks may present a buying opportunity for those willing to look past near-term jitters.
For financial advisors, the shift underscores the importance of staying attuned to sector rotations. While investment banks have benefited from robust dealmaking and trading revenues, the valuation gap with alternative managers has widened. Oppenheimer’s move echoes a sentiment that ultra-high-net-worth clients increasingly demand credit, planning, and investment depth—areas where alternative managers often excel.
The downgrade also comes as the broader economy shows resilience, with U.S. GDP growth holding at 2.1% according to S&P Global, supported by AI investment that offsets geopolitical disruptions. In this environment, Oppenheimer’s call to take profits from investment banks and pivot to alternatives may resonate with advisors seeking to position portfolios for the next phase of the cycle.
Oppenheimer’s analysis did not cite any specific negative catalysts for the investment banks, but rather a strategic preference for locking in gains. The firm’s downgrade of Citigroup and Bank of America to “perform” suggests a more neutral stance on those names, while the outright underperform ratings on Goldman and Morgan Stanley signal a stronger conviction to reduce exposure.
