Large-cap bank stocks such as Bank of America Corp (NYSE:BAC) have rallied with enthusiasm since the election results in early November. However, while that rally has extended even into November, the rate of change and the slope of the line have me questioning how high the probability of a continued run is.
The prospects of a Santa Claus rally still could offer more upside to bank stocks. But even for quicker traders, I would suggest looking out for a consolidation phase sideways to lower. That would offer better buying opportunities in BAC stock than chasing here at the highs.
For perspective, note that the financial sector of the S&P 500 — as represented by the Financial Select Sector SPDR Fund (NYSEARCA:XLF) — had rallied about 15% from Nov. 9 through last week’s highs.
Part of the reason for bank stocks’ strong outperformance in recent weeks has been the prospects of higher interest rates — not just a result of the Federal Reserve’s more hawkish tone, but also the expectations of an economic revival under a Trump presidency. Lastly, the promise of more infrastructure spending under the new presidency would also argue for more bond issuance (so, financing of infrastructure spending), which could mean more business for investment banking and capital markets businesses.
As a reminder, the Fed’s December meeting is scheduled for next week, Dec. 14. As of today, market participants are widely anticipating an interest rate hike at this meeting.
BAC Stock Charts
Before we look at BofA’s charts, I want to look at financials broadly versus the market.
Below, I plotted the S&P 500 (blue) versus the XLF ETF (red). From this multi-year perspective, we can see that this sector — after lagging badly for many years — is now just starting to play catch-up with the broader large-cap stock market.
Through a multimonth lens, bank stocks may indeed see further upside in relative and absolute terms as they try to meet the rest of the stock market.