Investing.com -- Wolfe Research upgraded the M&A Independent sector to Market Weight from Underweight in a note Wednesday, citing a combination of stock underperformance and early signs of improving deal activity.

“Following a period of underperformance (-19% YTD vs. S&P Fins.) and early signs that deal activity is inflecting, we see risk-reward as balanced,” Wolfe analysts wrote in their latest Capital Markets Data Pack.

The upgrade follows a rough stretch for M&A brokers, particularly Perella Weinberg Partners and Moelis (NYSE: MC ) & Company, which were cited as "negative outliers" in Wolfe’s 2Q investment banking and trading setup.

Still, the firm now sees potential in the space. “M&A shares [are] trading at ~15x our normalized EPS,” they noted, with Evercore (EVR) named as their “highest conviction long among the M&A Brokers.”

The firm’s optimism is partly tied to improving macro conditions. Wolfe analysts point to a likely inflection in deal activity following recent U.S.-China and U.K. trade agreements, although tariff risks continue to bifurcate the market.

“QTD announced fees in sectors with low tariff exposure [are] down -7% YoY vs. -50% in more tariff-exposed sectors,” Wolfe stated.

Private equity could also be a source of renewed deal flow, according to the firm.

Wolfe noted that the industry is grappling with a three-year “dry spell” in monetizations, but historical patterns suggest a faster recovery could be on the horizon.

“The GFC paradigm also gives reasons for optimism, with sponsor M&A / exits doubling over the following two years,” analysts wrote.

Wolfe’s analysis of normalized M&A fee potential supports further upside. “Our findings support +30-40% growth over the next two years,” they said.