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Is Bank of America’s Rally Over?



BAC rallied 23% in November

2016 has been a rough year for the financial sector. Banks entered 2016 expecting four rounds of interest rate hikes. But things haven’t turned out in their favor. Most banks expect earnings to improve in the third quarter, as trading activity picked up. Further, the start of the third quarter has witnessed solid pipeline activity and improving macro fundamentals. Credit cost pressure has also eased as credit quality has improved. For banks, this could result in less need for energy-related loan loss reserves, stabilizing commercial net charge-offs, and relatively stable consumer credit costs. Banks, which have been in the spotlight since the start of 2016, might see easing pressures in upcoming quarterly results.

In 2016 so far, Bank of America stock has risen 21%. Comparatively, shares of Goldman Sachs (GS), Citigroup (C), and Wells Fargo (WFC) have outperformed. They have generated returns of 19%, 9%, and -1.3% in 2016 so far, respectively.

In November alone, Bank of America stock has risen 22% while the Financial Select Sector SPDR ETF (XLF) was up 12.7%.

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