On September 1, 2026, pedestrians in New York City were seen passing by a branch office of Bank of America, amid a period of heightened market focus on Q2 2026 earnings.

Despite Bank of America's (BAC) warning of soft third-quarter results — a disclosure that sent its shares down more than 5% on Monday — Morgan Stanley believes the stock will stage a rebound in the fourth quarter, arguing that the market's reaction to the announcement has been overly aggressive.

Morgan Stanley equity analyst Manan Gosalvia wrote in a note to clients on Tuesday: "Weaker capital markets activity in the third quarter prompted the company to lower its full-year operating leverage guidance, but the more than 5% decline in the stock price far exceeds our calculated 1.5% reduction in earnings per share."

The analyst projects that Bank of America's third-quarter investment banking fee revenue will land between $1.6 billion and $1.8 billion, marking a year-over-year decline of roughly 11% to 21%. He also expects third-quarter expenses to reach $18.6 billion, compared with the Morgan Stanley consensus estimate of $18.3 billion.

Even so, Gosalvia anticipates that operating leverage will recover in the fourth quarter and maintains his view of sustainable operating leverage of 200 to 300 basis points.

Morgan Stanley retains an "Overweight" rating on Bank of America, believing the company can achieve the performance targets set at its 2025 Investor Day. Gosalvia has set a price target of $67, implying a potential upside of nearly 12.7% from Monday's closing price.