Buying Bank of America Corp (NYSE:BAC) shares, or any of the other major banking firms, was a no-brainer last year. With then-candidate Donald Trump being unexpectedly victorious, BAC stock surged on the back of his campaign promises. Although the nation was expecting a much different outcome, the markets at least consoled themselves that Trump was pro-business.
Between the election and the end of 2016, Bank of America shares gained an impressive 30%. Its peers JPMorgan Chase & Co. (NYSE:JPM) and Citigroup Inc (NYSE:C) achieved similar results.
Demonstrating the extent of Trump’s “Midas touch,” even scandal-ridden Wells Fargo & Co (NYSE:WFC) enjoyed an outsized leapfrogging. Really, investors that bought any bellwether stocks appreciated the “Trump effect.”
But in 2017, the markets have more questions than answers. BAC stock is only up roughly 7% year-to-date, and that’s largely the good news for the banking sector. Only BofA and Citigroup are decidedly positive for the year. Wells Fargo is under water and JPMorgan is basically flat.
What’s especially concerning about the big banks is that their technical posture indicates pensiveness. After accruing their immediate post-election momentum, and a little bump-up during the spring season, BAC stock and company have nowhere to go. Many investors are unsure about the economy. Others don’t like President Trump’s leadership.
I think InvestorPlace contributor Will Ashworth best captured the confusing sentiment surrounding Bank of America. In his view, BofA is a buy, a hold … and a sell!
Good News Doesn’t Translate for BAC Stock
I completely understand the arguments for either buying or holding onto BAC stock. The firm is a massive entity, and as long as the economy keeps ticking, and interest rates keep rising, Bank of America should do very well for itself.
At the same time, I’m not convinced that the tailwinds will continue blowing in BAC’s favor. The benchmark 10-year U.S. Treasuries have been declining since mid-December of last year. We saw a momentary lift in the interest rate in mid-March, which raised hopes for all bank stocks. However, that boost was not to be, and now, people are wondering about firms like BofA.
At least, they should be worried. Overall, analyst consensus is positive for BAC stock. According to InvestorPlace feature writer James Brumley, folks need to be patient with Bank of America.
Brumley writes:
“The growth is brewing. The Fed’s plans to crank up interest rates this year are in response to an economy that’s finally reaching escape velocity. Though it may not feel like it at times, as a whole, the picture is looking brighter — the Fed’s chiefs know what they see. That economic growth should not only rekindle interest in investing, but also prod the borrowing that banks thrive.”
I have no reason to doubt him or anyone bullish on BAC stock. But if we assume that the markets always absorb all the information that is available at that moment, why are interest rates charting an ugly trend channel?
BofA Is Not out of the Woods
Admittedly, the interest rate deal could swing back to normal once Washington achieves some sense of normalcy and stability. However, BAC stock charted an interesting pattern that I want to bring to your attention.
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But because of the extraordinary, unprecedented election, BAC stock was “shocked” into life, breaking above the bearish wedge. Presumably, gone was the era of harsh restrictions on big banking institutions. Most other companies followed Bank of America in riding the Trump rally.
However, I don’t think BAC stock has convincingly “defeated” the wedge. We may have seen a relief rally, but the actual substance of making America great again is not yet realized. Perhaps it will be, but it’s an open question; hence, the current pensive nature of the shares.
I had previously raised concerns about Bank of America. Ordinarily, to switch my opinion, I’d like to see solid arguments pushing for that reversal. Unfortunately, I’m not getting great signals out of the markets. BofA is a name I’d avoid until it starts proving itself again.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
