Bank of America Corp (BAC) Stock Is a Hike Away From Breaking Out

Advertisement

BAC Stock - Bank of America Corp (BAC) Stock Is a Hike Away From Breaking Out

Source: Shutterstock

The May labor report made the rounds about a week ago. Bank stocks like Bank of America Corp (NYSE:BAC), Wells Fargo & Co (NYSE:WFC) and Goldman Sachs Group Inc (NYSE:GS) all initially traded lower as the 138,000 jobs added in May were below economists’ expectations of 185,000. So … why did BAC stock and the rest shrink back?

Source: Shutterstock

Simple: It altered investors’ views on interest rates.

For the Federal Reserve to justify raising interest rates, it needs the economy to be strengthening. A stronger economy is indicative by robust jobs growth. Without strong enough job growth, the Fed may have to delay raising rates longer than anticipated.

This impacts bank stocks too. When short-term interest rates move higher, companies like Bank of America become more profitable. Net-interest margins increase and essentially, each rate hike boosts the bottom line for big banks without adding risk.

Many thought the economy could grow more quickly when Donald Trump became president. Stronger growth equals more rate hikes which equals more money for the banks. Thus, BAC stock went from around $16 at the time of the election to $25 by the beginning of March.

Back to the Fed

Bank of America, Goldman Sachs and others need volatility, higher interest rates and a stronger economy to see bigger profits. Two of those — a stronger economy and higher rates — are tied closely together.

Some will argue that one weak jobs report won’t deter the Fed from eventually hiking. Right now, the CME Fed Watch has it all but certain that it will happen in June. We’ll know for sure during next week’s Federal Open Market Committee (FOMC) meeting.

But not everything is on the Fed. Even if we got a surprise rate-hike in June, another weak employment report in July or August could hold bank stocks back on sheer economic and consumer spending worries.

Trading BAC Stock

BAC, BAC stock, Bank of America, Bank of America stock
Source: Stockcharts.com

If a June rate is expected, it’s hard to tell. One of the biggest moves in BAC stock of late is the one going on today — and that’s being powered by the House passing a Dodd-Frank repeal bill.

Bank of America fell from about $25.50 to $22 in March, before recovering some of those losses to $23.50 currently.

The recent underperformance may make owning the stock frustrating, but it’s great for traders.

The orange line of support in the chart above (near $22) continues to hold. That’s great for long investors. Additionally, BAC stock is breaking above the 50-day moving average, as well as downward resistance (blue line). Finally, the MACD (purple circle) is turning positive, which could boost shares even higher.

These are three bullish developments for BofA.

Bank of America’s May highs around $24 appear to be the next target, and if it can surpass that, 52-week highs around $25 are next.

But Bank of America needs help. The Federal Reserve needs to raise rates later this month, and employment needs to be strong come the June report at least … and, of course, investors need to do what they’re telegraphing and not sell the news.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held no positions in any security mentioned.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/bank-of-america-corp-bac-stock-is-a-hike-away-from-breaking-out/.

©2024 InvestorPlace Media, LLC