A top Wall Street firm predicts Goldman Sachs' trading woes will continue into next year.
UBS lowered its rating on the bank's shares to neutral from buy, saying it will report earnings below consensus expectations in 2018.
"Shares seem to reflect a rebound in revs but we have limited confidence in that. We are downgrading GS shares … as the market seems to be pricing an inflection in their FICC [fixed income, currency and commodities] revenues despite the recent weakness, suggesting a recovery is needed to justify 2018 consensus," analyst Brennan Hawken wrote in the note to clients Monday. "We believe there are better opportunities for investors (such as buy-rated Morgan Stanley)."
The bank reported better-than-expected second-quarter profit on July 18, but its shares fell after the results were announced on concerns over its trading business. Goldman Sachs was also downgraded by Keefe, Bruyette & Woods last week.
Goldman's second-quarter fixed income, currency and commodities revenue declined 40 percent from the previous year, and the bank said it was "a challenging environment characterized by low levels of volatility, low client activity and generally difficult market-making conditions."
In contrast, Morgan Stanley's fixed income business dropped only 4 percent in the same quarter.
Hawken reduced his 12-month price target for Goldman's shares to $230, which would be a 4.5 percent gain from Friday's close. His previous price target was $255.
The analyst lowered his 2018 earnings per share estimate for Goldman Sachs to $19.30 from $20.40. The average estimate of Wall Street analysts is $20.16.
"While trading could rebound, that has not happened over the past year for GS absent a surprise event such as Brexit or the Trump election and we have difficulty relying on such an event in order to justify a bullish thesis," Hawken wrote.
Goldman Sachs shares have underperformed the market this year. Its stock is down 8.1 percent year to date compared with the S&P 500's 10.4 percent gain through Friday.
The bank did not immediately respond to a request for comment. Its shares were down less than 1 percent midmorning Monday.
— CNBC's Michael Bloom and Jeff Cox contributed to this story.