From June 2016 to March 2017, the price of Bank of America (NYSE:BAC) stock more than doubled, vaulting from $12 to $25. In the six months since, BAC stock has ping-ponged between $22 and $24, with not a single step outside those bounds. Which begs the question: Is the long-awaited rally in BAC stock already over?
BAC Stock Stuck in Neutral
Part of the choppiness in the stock is sector related. Shares of fellow big banks Wells Fargo (NYSE:WFC) and Goldman Sachs (NYSE:GS) have also been trending downward in the last six months. After a huge run-up in the wake of Donald Trump’s surprise election, financials have been in a holding pattern, waiting for our 45th president to follow through on his vows to reduce regulations on America’s banks.
Slow and steady growth has been a staple of U.S. banks since the recession. Among the six largest American banks by market cap, BAC posted the best top- and bottom-line increases in the latest quarter. And yet BAC stock has scarcely budged. It shows that buying fatigue may be setting in. With no obvious catalysts on the horizon, aside from the possibility of an third-quarter earnings beat next month, it could linger like a dark cloud for quite some time.
Hedge funds have been bailing out of Bank of America stock in droves of late. In February, institutional ownership of Bank of America stood at nearly 70%; it’s now down to 63.5%, lower than at any point in the last year. Of the six major banks, only Morgan Stanley (NYSE:MS) has less institutional ownership, at 63.1%.
It seems no one really wants BAC. Action from the White House could suddenly change that, and prompt another rally in the banking sector as a whole. But six months of churn is a long time. The longer it goes, the less patient investors will be with the wait-and-see approach with BAC stock, and more institutions will bail.
On the bright side, earnings growth is expected to top 20% this year, which would outpace the 14.5% EPS growth from 2016. And the estimated 5.8% sales growth would be a four-year high, if true. But here’s the thing: Bank of America is already coming off its best quarter for top-line growth in years and has posted four straight quarters of profit growth. None of it has impressed investors much — at least not during the last two earnings reports.
Avoid BAC Below $25
My theory? After rallying more than any other big bank stock in the last five years (179%), BAC stock has simply run out of steam. Barring drastic, bank-friendly actions by Trump, or some serious earnings beats, I think BAC is doomed to remain in technical purgatory between $22 and $24 for quite some time – or perhaps worse.
Right now, the stock is trading at the upper end of that range, having rallied nearly 8% in the last 10 days. If BAC breaks above $25 for the first time since March, then perhaps it will have some legs. Anything short of that, however, and I’d leave Bank of America stock alone. Like most of Wall Street has been of late.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
