Raymond James analyst Michael Rose cut his recommendation on the Charlotte-based bank's shares to market perform from outperform, according to a report published Thursday by the brokerage firm.
The reduction was driven by changing expectations for Federal Reserve interest-rate cuts as well as falling yields on 10-year U.S. Treasury bonds, Raymond James analysts wrote in the report.
Estimates for the bank's earnings will now be based on an assumption that the Fed cuts interest rates by 0.25 percentage point in September and another cut of the same size in December. Previously, Raymond James had projected just one 0.25 percentage-point cut in October.
The firm also made a downward revision to its estimate for 10-year U.S. Treasury yields, to a range of 1.5% to 1.75% over the rest of the year vs. prior expectations that yields would remain near 2%.
Lower interest rates usually lead to a reduction in banks' lending margins.
"While the debate will certainly continue to rage around how many Fed rate cuts we get from here and how low yields will ultimately go, at a minimum, it stands as a significant earnings headwind for the majority of banks and the industry," the analysts wrote.
Bank of America shares rose 1.4% in New York trading on Thursday, lagging rivals JPMorgan Chase (JPM) - Get Report , Citigroup (C) - Get Report and Goldman Sachs (GS) - Get Report , which each gained more than 2%.
Bank of America's stock has fallen 12% from this time last year, when the Federal Reserve was raising interest rates.
Other risks to bank shares, according to Raymond James, including the prospect of a slowing economy, which could hamper loan growth and lead to an uptick in defaults.
"Pressure for the bank sector is coming from several angles," according to the report. "The U.S. economy remains relatively healthy but we have begun to see some signs of deterioration."
The nervousness over higher defaults could prompt some bank lending officers to tighten their underwriting standards, especially with shrinking margins.
"We question banks' willingness to continue to lend at relatively thin (and declining) spreads," the Raymond James analysts wrote.
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