From the beginning of August until the beginning of March, few stocks were hotter than Bank of America Corp (NYSE:BAC). During that time, BAC stock popped 80%, reaching highs it hadn’t touched since before the recession.
Since then? Bupkis.
After topping out at $25.50 on March 1, BAC stock has spent the last five months on a wild roller coaster, with the down slopes far steeper than the upticks. The stock has twice dipped down to the low $22’s. And after nearly topping $25 again earlier this month, Bank of America sank back below $24 in the days following a mixed second-quarter earnings report.
At 46 cents a share, the bank exceeded analysts’ earnings expectations by 3 cents. However, Wall Street punished the stock for a 14% decline in the company’s fixed income trading unit.
So, back down BofA stock came. It’s not a great sign that investors have punished BAC so severely for such seemingly small potatoes. But that’s been the stock’s pattern of late, with double-digit drops in March, April, May and June. BAC stock remains tenuously above its 50-day moving average, but still well off its March highs.
Needs a Break
What could break BAC stock out of its four-month holding pattern in the $22-to-$24 range? An earnings beat wasn’t able to do it, as investors picked nits with a disappointing aspect of what were otherwise impressive results. Passing the Dodd-Frank stress test, along with all other banks in June, didn’t do the trick either.
The last real catalyst for BAC was the election of Donald Trump, a bank-friendly president who sparked a 54% run-up in the stock during the four months after he was voted into office the second week of November. If not for the Trump rally, which lifted all boats in the financial sector, BAC stock would be down 15% in the last two years.
Of course, the same could be said for many of the other big U.S. bank stocks, even more so for Wells Fargo & Co (NYSE:WFC) and Citigroup Inc (NYSE:C). So perhaps what’s holding BAC back these few months is what’s limiting the upside in the financial sector as a whole: their big returns in the last nine months were inflated by the initial excitement that followed Trump’s election and inauguration.
Now that the excitement has faded, bank stocks have fallen back into a boring pattern of slow growth.
BAC Stock Needs a Spark
A few more strong quarters could change that for Bank of America. The once-struggling bank is coming off its first quarter of double-digit sales growth in years. Earnings per share have improved by double digits for three straight quarters, with 20% growth expected this year.
All of that means that in the larger picture, BofA is more stable than it’s been in at least a decade. It’s possible that BAC stock got too far in front of its skis during the four-month Trump rally, and has settled into a period of consolidation.
One good quarter wasn’t able to jumpstart a new rally in BAC stock. But if the bank keeps growing the way it has been the last few quarters, eventually the stock will follow suit. Patient, long-term investors could buy here in the hopes that a break above $25 will come in the next few weeks. With no obvious catalyst on the horizon, however, those weeks could turn into months.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
