This year’s 16 per cent slide by major U.S. banks apparently isn’t enough for analysts, who are subjecting the sector to a fresh pummeling.

Keefe Bruyette & Woods Inc.’s Brian Kleinhanzl shifted his sector recommendation on the biggest banks to market weight from overweight, and turned cautious on the coming year. There aren’t enough “positive catalysts” ahead, other than "simply having a discounted valuation," to lift the group after underperformance driven by disappointing loan growth and macroeconomic risks, Kleinhanzl wrote in a note. Shares may keep dropping, with cuts to consensus estimates and credit worries unlikely to abate.

Flagging dimmer expectations for global and U.S. economic performance, KBW downgraded Bank of America Corp. and Morgan Stanley to market perform. “Low loan growth and rising deposit betas mean that net interest margin expansion will be limited broadly,” Kleinhanzl said.

Separately, KBW analyst Brian Klock wrote that the 2019 narrative may turn toward “defensive banks that can grow earnings using other levers rather than depending on rates.” Klock cut his recommendation on Comerica Inc. and KeyCorp to market perform, but recommends investors own Citizens Financial Group Inc., M&T Bank Corp., SunTrust Banks Inc. and Zions Bancorp.

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Atlantic Equities’s John Heagerty downgraded Goldman Sachs Group Inc. to neutral and slashed his price target to us$210 (near the Street low of us$205) from us$295 on fears about new CEO David Solomon’s strategy and Malaysia’s 1MDB corruption scandal.

Heagerty also lowered his per-share profit forecasts due to “a more subdued environment for investment banking.” In particular, fixed income, currency and commodities revenues “are clearly coming under pressure as macroeconomic uncertainty increases,” while debt issuance is hurting as rates have risen and equity-capital-markets income may be damped amid greater market volatility.

The dour outlooks from KBW and Atlantic follow an 11 per cent decline among America’s largest banks since Dec. 4, the worst five-day retreat since 2015, putting the sector on track for its biggest quarterly drop since 2011. Worries about contracting commercial and industrial lending and worsening credit are amplifying broader trade and economic fears.

On Tuesday, Morgan Stanley analyst Ken Zerbe wrote that the sector is prone to further weakness if economic fundamentals don’t improve.

“The carefree days of rising rates and pristine credit quality could be coming to an end,” Zerbe said. “We cannot ignore the growing risk of a bear credit market next year preceding a recession as well as the negative impact of weaker economic growth.”

--With assistance from Elena Popina