Bank stocks can feel further pain if recent warning signs in the economy evolve into a recession, according to Bank of America. While a recession is not in the firm’s base forecast, analyst Ebrahim Poonawala said conditions could look similar to 2000 and 2001 if one does come. He noted that re-rating stock multiples to levels seen during the Covid-19 pandemic would suggest that the average bank stock covered by Bank of America would see a 48% drop in a recessionary scenario. Poonawala pointed to Treasury Secretary Scott Bessent’s comments that the economy was in a “detox period” and could “roll a bit” as President Donald Trump’s administration slashes government spending. This idea, Poonawala said, “opens the door to a worsening macro” and could signal downside risk to Bank of America’s earnings forecasts for financial institutions. “This is a significant change that we are still assessing vs a higher probability for positive EPS revisions we expected until a few weeks ago,” Poonawala told clients. That adds to a growing body of evidence pointing to cooling within the economy. Recent economic releases have pointed to slowing growth in the labor market, soaring layoff figures and rising concerns tied to tariff policies. President Trump himself has said to expect an economic transition period in a Fox News interview. Economic fears weighed on bank stocks in Monday’s session. Both the SPDR S & P Bank ETF (KBE) and SPDR S & P Regional Banking ETF (KRE) slid almost 4% in the session. KBE 1D mountain The KBE, 1-day More specifically, Poonawala said to expect a median downside of 11% to earnings per share in 2025 for the large- and mid-cap banks covered by Bank of America. Using the 2000-01 recession as a guide, he said to expect declines in commercial and industrial banking, as well as on credit cards, to drive this potential downturn. Poonawala said a recession is not in the firm’s most-likely scenario and has not been discounted within these stocks. If this transition period instead gives way to an era of stronger economic growth, he would recommend boosting exposure to best-in-class banking franchises, Poonawala said. Within large caps, he pointed to JPMorgan , Wells Fargo , Goldman Sachs and Morgan Stanley , among others, as examples. For small caps, the analyst listed Cullen/Frost Bankers , First Horizon and East West Bancorp .
Read More: Big downside for bank stocks if this ‘detox’ period turns into recession: Bank