Wells Fargo (NYSE:WFC) posted Q3 results Monday and Bank of America (NYSE:BAC) before Tuesday’s opening bell. Both banks showed improvement in credit quality, but sluggish loan demand continues to weigh on the bottom line.

Expectations are now so low for the banking sector that both of these stocks could pop nicely as Wall Street’s year-end rally builds steam. Note, however, that WFC is a much safer franchise (with far fewer Halloween skeletons in its closet) than BAC.

Indeed, I’m looking for WFC to declare a second post-2008 dividend increase within a few months. (The first hike was announced in March 2011.) BAC still hasn’t received permission from regulators to boost its meager payout of 1 cent per quarter, which was slashed during the financial crisis.

WFC rates a buy up to $27; BAC up to $8. Both limits remain unchanged. From here, I project a 15% to 20% return for WFC as the year-end rally unfolds. BAC could jump 20% to 25%.

IBM (NYSE:IBM) is a good example of a stock where expectations got too high. Monday night, Big Blue reported Q3 operating profits of $3.28 per share, comfortably above the $3.22 analyst estimate. However, sales came in a teeny bit shy of the consensus ($26.2 billion versus an expected $26.3 billion), triggering this Tuesday’s selloff in the stock.

I’ve had cautionary comments about IBM in the past. Thus, Tuesday’s drop shouldn’t have taken you entirely by surprise. Happily, though, IBM’s basic operating metrics are so strong that the stock should pull out of its current tailspin fairly soon.