Morgan Stanley’s "Mean Girl" Downgrade Drops JPMorgan Shares Despite 9% Dividend Hike

It’s rare to see the big dogs of Wall Street taking shots at each other. But when it happens, it’s like watching two mother-in-laws fight over who gets to hold the baby—you just can’t look away. 

And in this case, Morgan Stanley decided to take a not-so-subtle swing at JPMorgan, downgrading its rival's stock and sending it into a slight dip. (Because why beat 'em when you can just kick 'em while they're on top, right?)

No that wasn’t a typo—Morgan Stanley downgraded JPMorgan Chase, the top dog of big bank stocks since the Fed started going full throttle on interest rate hikes two years ago. You’d think JPMorgan, with all its accolades and a fresh 9% dividend hike (not too shabby for dividend hunters), would be untouchable by now. But no, Morgan Stanley’s analyst Betsy Graseck thinks the party might be winding down for Jamie Dimon and his crew.

Graseck didn’t drop an Eminem-level diss track, but she sure threw enough shade to get the point across. She downgraded JPMorgan from “overweight” to “equal-weight”—which is basically Wall Street’s way of saying, “We’re not ghosting you, but maybe we’ll call you… later… if we feel like it.” This downgrade came with a slightly raised price target of $224, implying about a 6% upside from Friday’s close. Naturally, the market heard that and sent JPMorgan’s stock down 1% so far today.

So what’s the deal? Why the downgrade after JPMorgan has been kicking butt for the last two years? Graseck’s take: "We see less positive surprises ahead for JPMorgan following a strong run over the last two years." Translation? JPMorgan has been the teacher’s pet, but with potential rate cuts on the horizon, it’s time for the mid-cap banks (the “forgotten kids” of finance) to star in the school play. 

She also noted that the real winners of a rate-cut environment could be banks like Cadence Bank, US Bancorp, and Zions Bancorp, which have been getting pummeled by higher funding costs when rates were rising.

Before we bury JPMorgan too deep, let’s not get it twisted—JPM has been absolutely crushing it. Since the Fed started its rate-hiking campaign back in March 2022, JPMorgan’s stock has surged nearly 60%. For comparison, the KBW Bank Index (which tracks a bunch of banks) has dropped more than 9% in that same time frame. So, yeah, Jamie Dimon and his team have been lapping the competition. Oh, and did we mention they just raised their dividend by 9%?

And this year alone? JPMorgan is up 24%, outpacing both the KBW Bank Index (19%) and even the S&P 500 (20%). But here’s where Graseck’s downgrade comes into play. With JPMorgan trading at around 2.2 times tangible book value, there’s an argument that maybe the stock is a little rich for what’s left in the tank. Sure, there’s a 6% upside, but that doesn’t exactly make it a screaming bargain compared to her other mid-cap picks, which have potential upsides between 12% and 39%.

While Morgan Stanley may have thrown some shade with that downgrade, don’t get it twisted—they’d swap places with JPMorgan in a heartbeat. This whole situation feels less like a serious critique and more like a “Mean Girls” moment—JPMorgan’s the new pretty girl in school who’s been killing it, and Morgan Stanley’s Regina George, throwing a little side-eye because someone else is getting attention.

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Stock.News does not have positions in companies mentioned.