The Reasons for Bank of America’s 6.6% Rally in October

October has been good for Bank of America (NYSE: BAC), as the shares of the multinational bank edged higher by 6.6 percent, outperforming major rivals such as Wells Fargo, Citigroup, and JPMorgan Chase.

The stock of the second largest bank by assets was primed to resume its move to the upside after significantly plunging during the start of 2016.

Back in the month of February, BAC shares bottomed out at around the same time that the prices of crude oil declined below $30 per barrel. This development could not be considered as just a coincidence as the depressed oil price environment made it challenging for corporations within the energy industry to service their bank loans. With this, the multinational bank was driven to ramp up the amount of cash that it set aside during the first quarter in preparation of future loan losses.

Moreover, it was about the same time that Britain announced that it would conduct a referendum in June that would decide if United Kingdom will stay or exit the European Union. This announcement resulted in market uncertainty and led to a 16 percent plunge in the first quarter trading revenues of the global bank. In the month of June, stocks of banks dropped again in the wake of the referendum, which came out in support of exiting the EU.

By the time the Q3 earnings came out, the shareholders of Bank of America were looking for any reason to conclude that the disappointing performance of the bank would somehow improve, and this is what they got.

Almost all of the metrics of Bank of America went in the bullish direction in the quarter that ended last September 30. Due to the noninterest income and higher interest rates, the company’s revenue was higher by 3 percent year-over-year. Moreover, the multinational bank’s net income clocked in at 7 percent higher compared to the year-ago quarter, and the expenses were lower.

Due to these positive developments, investors pushed BAC stock higher. Since Bank of America reported its earnings on October 17, the share price of the bank has surged by 4.3 percent.

The great news for investors is the fact that the rally could continue for the global bank as its shares continue to trade for a 31 percent discount to book value.

It can be said that the real game changer would be higher interest rates, which could come later this year. Based on the Q3 earnings call of the Bank of America, a 100 basis point hike in short term and long term interest rates would add net interest income of $5.3 billion over the next 12 months.

At this point in time, the global bank is definitely headed in the right direction, but we are yet to find out if it can sustain its momentum through the end of 2016.

As of 4:52 AM GMT -4 on November 1, the Bank of America stock is changing hands at $16.50, down by 1.08 percent or 0.18 points.

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