The stock of Bank of America Corp. (NYSE: BAC) is anticipated to rally in the next days with a possible interest rate increase by the Federal Reserve in sight. For several months, the banking sector of the United States has traded in green, and analysts expect it to gain more in the next couple of days.
Short-term interest rates in the United States have remained unchanged for almost a decade. With increasing anticipations of a rate hike, investors of Bank of America are hoping that the company’s stock will edge higher. Due to low interest rate levels, banks have found it difficult to boost the net interest margin. If the Fed finally raises interest rates, this will mark the end of their gloomy days.
After the third quarter earnings reports and heightened expectations of a Fed rate hike, sell-side firms and market analysts have released updates on banks’ future earnings. When rates are on the rise, banks that have higher asset sensitivity gain more benefits. Moreover, the overall financial earnings result of banks was directly affected by the increase in profits from interest bearing products.
JPMorgan Chase & Co. (NYSE: JPM) forecasts that there will be a $3 billion increase in interest income upon a 100 basis points lift-off in rates. Meanwhile, Bank of America pointed out that it anticipates a revenue boost of approximately $4.5 billion within one year. On the other hand, Citigroup Inc. predicts an increase in revenue amounting to $2 billion. As the recent movement of the BAC stock coincides with the development of the interest rate environment, a lot of market players endorse the stock as one of the safest bet.
The Federal Reserve has given some indications of its confidence in the domestic economy and noted that the financial markets are ready for an interest rate hike. Expectations for a liftoff in interest rates is expected due to the good condition of the job market, as well as the continuous improvement in the rate of unemployment.
Some investors and market analysts are pretty sure that the stock of the Bank of America will move to the upside, and will experience a boost when it comes to its top line financial results. According to Rafferty Capital Markets analyst Dick Bove, he expects Bank of America will head near its 52-week high after an interest rate increase by the Federal Reserve.
Despite the fact that the mentioned bank was among the financial institutions which took a longer period of time to recover from the financial crisis, analysts believe that its stock price will surge due to its strong fundamentals.
During the past 3 months, the BAC stock has outperformed the Standard & Poor’s 500, as well as the XLF Select Sector Bank index. The bank’s stock rallied by nearly 8 percent, while the S&P 500 only gained 4 percent and the XLF Select Sector Bank index improved by 3 percent. Outperforming the overall market on the belief that the rates would increase and would in turn bring a positive impact on the Bank of America adds to investor confidence.
Based on the recent data from Bloomberg, most of the analysts following the bank maintain a bullish view on the BAC stock. Out of a total of 40 analysts, 27 advocated a Buy, 9 advised a Hold, while only 2 analysts suggested a Sell position on the bank’s stock. The consensus 12-month price target stands at $19.