(Bloomberg) — Analysts at Morgan Stanley cut their view on large- and midcap banks on the rationale that President Donald Trump’s tariff policy increases the risk of recession and threatens to prolong any material resurgence in capital markets activity. 

Analysts cut their view on the large-cap and midcap banking sectors to in-line from attractive, according to an April 7 note. Morgan Stanley analysts also cut their sector view on financial advisers and consumer-finance stocks.

“Trade developments move our base case to a significant gross domestic product slowdown, with risk of our bear case recession scenario rising sharply,” analysts including Betsy Graseck wrote in a note. The rising economic uncertainty will also likely delay a material rebound in capital-markets activity, they wrote. 

Morgan Stanley analysts also cut their sector view on financial advisers and consumer finance stocks.

In premarket trading Monday, shares of banks were all lower alongside US equity futures. Equities pared some losses as JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon urged a quick resolution to the tariff policies. Stocks were hammered last week, with global equity markets wiping out some $9.5 trillion. Shares of big US banks plummeted Friday, notching their biggest two-day drop since March 2020. 

Read: JPMorgan to Goldman Swoon in Worst Two-Day Rout Since Pandemic

Goldman Sachs Group shares were cut to equal-weight from overweight, citing its exposure to investment-banking revenues,“which we view as having the fastest-twitch response within the financials sector to recession risk and deteriorating market conditions, much faster than loan growth at traditional commercial banks,” they wrote. Goldman shares fell 3.5% premarket. 

Meanwhile, the analysts see management cutting revenue guidance when banks start reporting earnings later this week. JPMorgan, Wells Fargo & Co. and Morgan Stanley will kick off reporting for lenders on April 11. 

“With recent market volatility, clearly the outlook for investment banking and wealth fees needs to be tempered,” they wrote. With shares of JPMorgan, Citigroup Inc. and Bank of New York Mellon Corp the most preferred hearing into results, they said. 

–With assistance from Joe Easton.

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