Bank of America Stock Rises Sharply Amid Political Changes

Performance Overview

Bank of America’s stock (NYSE: BAC) has surged by approximately 42% year-to-date, outperforming the S&P 500 index, which has increased by 25% over the same timeframe. In comparison, its competitor, Wells Fargo (NYSE: WFC), has seen even greater gains, with a 54% rise this year. Currently, BAC shares are trading at $46 each, closely aligning with Trefis’ valuation estimates for the bank.

Political Factors Influencing Growth

Recent stock gains can be partially attributed to the U.S. elections, notably the reelection of Donald Trump as president. Many investors believe that the Trump administration may pursue deregulation, leading to less stringent bank oversight compared to the Biden administration. This perspective suggests banks, including Bank of America, could experience increased revenues through higher deal volumes, a boost in lending activities, and reduced compliance costs, all of which could enhance profitability. Furthermore, Trump’s previous support for tax cuts may positively impact the financial performance of banks, while the Republican control of the Senate and potential control of the House could benefit the banking sector overall.

Stock Volatility in Recent Years

Bank of America’s stock performance over the last four years has not been smooth, displaying more volatility compared to the S&P 500 index. Returns for BAC were 50% in 2021, -24% in 2022, and 5% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, which consists of 30 carefully chosen stocks, has provided steadier returns, outperforming the S&P 500 each year in that period. Stocks in the HQ Portfolio generally yield better returns with less risk, making for a more stable investment. With the current economic uncertainties, such as potential rate cuts and global conflicts, questions arise about whether BAC will repeat its past challenges of underperforming the S&P in the year ahead or if it might see a substantial rebound. A closer examination of the company’s recent performance and future outlook may shed light on this issue.

Third Quarter Performance and Future Outlook

In the third quarter of FY 2024, Bank of America exceeded market expectations with total revenues of $25.3 billion, roughly the same as last year. Gains from trading revenues, asset management, and investment banking fees were offset by a decline in net interest income. Profits, however, fell 12% year-over-year to $6.9 billion due to increased provisions for loan losses. Rising interest rates have led to higher payments on deposits, making it more expensive for clients to secure loans, which may discourage borrowing growth. Nonetheless, the company has experienced a boost in its advisory and trading divisions. Fixed income trading revenue saw an 8% year-over-year increase, while equities trading surged by 18%, thanks to higher cash and derivative volumes. Wealth and investment management revenue also climbed 8% to $5.8 billion, driven by rising market valuations and client inflows.

Looking ahead, prospects appear more favorable. The net interest income may improve in Q4, thanks to Federal Reserve rate cuts that began in September. The sequential growth in net interest income during Q3 signals a potential positive shift. Additionally, reduced interest rates and enhanced political clarity following the elections could stimulate investment banking activities, with expectations of increased debt and equity issuances as well as mergers and acquisitions.

[1] Returns as of 11/17/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.