Bank of America Firing on All Cylinders Ahead of Earnings

Bank of America Corp. (BAC) is testing March’s 13-year high near 40, thanks to the relentless rise in interest rates, and is well-positioned for additional gains following next week’s Q1 2021 earnings release. Investors have taken note, lifting accumulation readings to the highest highs of the century, confirming renewed optimism that could finally signal a successful assault on 2006’s all-time high in the mid-50s.

Infrastructure Investment Paying Off

The Federal Reserve added to positive sentiment in March, announcing that all restrictions on bank dividends and share repurchases will end for most firms after June 30. The central bank allowed limited dividends and buybacks in the first quarter as part of the recovery from 2020’s pandemic-driven system shock. Banks have built a sizable cash hoard in the improving economic conditions and could deploy that capital aggressively when the last chains come off.

CEO Brain Moynihan outlined growing tailwinds in a recent interview, noting “The key is we’ve been able to invest $3.5 billion a year in technology. We’ve been able to open up branches in many new cities. We’ve been able to raise minimum wages, while we’ve kept expenses down. Now that’s the magic in a franchise, so when rates rise, which they will at some point—and when they did in ’16 and ’17—the earnings rise sharply, because we have no more expenses to deploy and all the revenue that comes in from the deposit base.”

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 15 ‘Buy’, 3 ‘Overweight’, and 9 ‘Hold’ recommendations. One analyst now recommends that shareholders close positions and move to the sidelines. Price targets currently range from a low of $30 to a Street-high $45 while the stock closed Friday’s session less than $2 above the median $38 target. Look for ratings and targets to go higher if Bank of America posts strong first quarter results.

The stock fell to a 26-year low in 2009 and turned higher into the new decade, stalling in the upper teens in 2010. It finally cleared that resistance level after the 2016 presidential election, stalling at the .618 Fibonacci retracement of the 2006 to 2009 decline in October 2019. The March 2020 selloff printed the third higher low since 2009, yielding a breakout that’s now targeting the .786 retracement in the low to mid-40s.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.