What Happened?
Shares of student loan provider Sallie Mae (NASDAQ: SLM) fell 16.4% in the morning session after multiple analysts downgraded the stock, citing concerns about a higher expense outlook. Morgan Stanley lowered its rating on the student loan company from 'Overweight' to 'Equalweight' and cut its price target. The change came after Sallie Mae presented a scenario that showed potentially higher-than-expected expenses in 2026 and 2027 as it prepared for new loan opportunities and potential government changes. Due to this outlook, Morgan Stanley reduced its earnings per share estimates for those years. Adding to the pressure, Compass Point also downgraded the stock more severely, from 'Buy' to 'Sell,' and significantly lowered its price target from $35.00 to $23.00.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Sallie Mae? Access our full analysis report here.
What Is The Market Telling Us
Sallie Mae’s shares are not very volatile and have only had 6 moves greater than 5% over the last year. Moves this big are rare for Sallie Mae and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 18 days ago when the stock gained 4.3% on the news that investors grew more optimistic about a potential Federal Reserve interest rate cut in December. The positive sentiment was fueled by comments from New York Fed President John Williams, a voting member of the rate-setting Federal Open Market Committee, who stated the central bank could cut rates "in the near term" without jeopardizing its inflation targets. Following his remarks, market expectations for a rate cut in December shifted significantly. According to the CME FedWatch Tool, the probability of a December rate reduction surged from a 37% chance earlier in the day to 70%. While lower rates can compress bank profit margins, investors often view them as a catalyst for broader economic activity, potentially boosting loan demand and reducing the risk of defaults.
Sallie Mae is down 6.1% since the beginning of the year, and at $25.67 per share, it is trading 25.4% below its 52-week high of $34.40 from July 2025. Investors who bought $1,000 worth of Sallie Mae’s shares 5 years ago would now be looking at an investment worth $2,231.
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