Well, hello Bank of America Corp (NYSE:BAC)! After spending a vast majority of time in 2016 underwater, BofA is finally on pace to deliver the goods for shareholders. A string of exceptionally strong earnings reports puts Bank of America stock into position. However, there can be no mistake that a surprise Donald Trump victory in this year’s contentious election was the primary catalyst for BAC stock.
Post-election, BAC has jumped 12% in the markets. But it’s not just the fact that BofA has suddenly found new life.
Its primary competitors within the “Big Four” banking complex have also seen a massive resurgence. Leading star JPMorgan Chase & Co. (NYSE:JPM) tacked on 10% since Trump’s victory, while Citigroup Inc (NYSE:C) gained 6%. Even the controversy-laden Wells Fargo & Co (NYSE:WFC) had a stellar ride. In fact, WFC led the Trump tailwind, moving up 14%.
Bank of America Stock Gets Unexpected Help
It’s a new era for the banking sector, and Bank of America stock is sure to reap the benefits. The financial industry has been hampered by an extremely stringent regulatory environment. Republicans, who are generally viewed as more business-friendly than Democrats, should help ease this burden. That the outspoken billionaire turned President-elect has full control to run the “Trump Mandate” is lost on no one.
The irony, of course, is that the Republicans and their looser approach were held responsible for the 2008 financial crisis. As with virtually every other investment, Bank of America stock was devastated at the time, eventually requiring outside help.
While it’s unfair to pin everything on one particular party, the perception was that the government had no oversight on big banks. For nearly a decade, BofA has been trying to shed its thorny past.
The 2016 election result couldn’t have come at a better time for BAC stock. The Wells Fargo controversy — in which millions of fake customer accounts were created to boost sales figures — did absolutely zero favors for the industry. So harmful was the impact that when the fraud was revealed, it took down other banks, BofA included. For the month of September, Bank of America stock dropped 2%, reversing two months of bullishness.
Had Hillary Clinton won the White House, it’s doubtful that anyone would have bought BAC stock. Americans voted for President Obama partially as an indictment of the Republicans’ economic policy. Clinton would have surely turned the regulatory screws tighter.
What’s Next for BofA?
Bank of America stock escaped a bullet, big time. Not only that, what was supposed to be a collapse of the Republican Party has now imploded the Democrats. A supportive ideology could potentially take root for BofA for years to come. Now, the question becomes, what specifically can BAC stock do with it?
Click to Enlarge
With the shackles off, you have to like the upside potential for Bank of America stock. Year-to-date, shares are up 18% in the markets.
True, a huge chunk of that is resultant of the surprise election of Donald Trump. Nevertheless, you have to give credit where credit is due. BofA has been steadily chipping away at bearish pressure all year, and now, it is seeing its just reward.
Also of significance is the fact that inclusive of this year, BAC stock is finally back to averaging double-digit returns this decade. Even excluding 2016, BofA is averaging over 10% returns. That’s a strong turnaround for a company that slipped badly in the 2000s decade, only bringing home 4%.
New Tailwinds for BAC Stock
Fundamentally, current investors of Bank of America stock are a lucky bunch. A Trump presidency changes quite a few things, and not just a business-friendly environment.
During the campaign season, the real estate mogul aggressively called out Janet Yellen and the U.S. Federal Reserve. Seemingly taking a page out of a Pat Boone gold commercial, Trump has accused the Fed of essentially creating a rigged economy. Logically, the best way to unrig it is to raise interest rates, which would help margins for BofA.
But Trump has also promised to get America back to work, specifically addressing blue-collar laborers. That entails improved sentiment towards commodity and energy markets. It also means giving heavily challenged companies like Caterpillar Inc. (NYSE:CAT) a major lifeline. These new economic policies open doors for BofA and other banks. This will be especially relevant since manufacturing and mining companies have been hit hard over the last few years.
Things change fast in the markets, and Bank of America stock is a prime example. After struggling to regain its reputation, the Wells Fargo controversy gave the banking sector a black eye. But just in the nick of time, Donald Trump pulls off an improbable victory.
Suddenly, the troubles for BofA are mostly in the rear-view mirror as everyone looks ahead to a new era of economic policy.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
