BAC

Shares of The Bank of America (BAC) scrambled above the $40 technical resistance level in late April. However, the price gained more than 6.5% in the first three trading sessions since the publication of the Q1 2022 financial report of the bank, which turned out to be perhaps the best among all the largest U.S. banking institutions that have already reported. This may be especially valuable due to the fact that the banking sector as a whole has been consistently declining since February due to ongoing concerns of the investment community about the steadiness of loan portfolios in the face of a potential threat of stagflation, which is increasingly being mentioned by various economists. 

A pick-up in lending activities, as well as beating market expectation on both the top and bottom line, including 80 cents of equity per share vs the average Wall Street estimates of just 75 cents and the best-ever result in first quarter revenues of $23.23 billion, helped to attract some dip buying as the Bank of America was trading with an almost 25% discount against the highest price of the beginning of the year. The BAC’s CEO Brian Moynihan encouraged investors with his prediction of a "significant NII [net interest income] improvement through the next several quarters". He also told CNBC’s Jim Cramer on "Mad Money" that spending is healthy despite roaring inflation. U.S. consumers "are a very strong force" and "their loan balances are down, they have plenty of borrowing capacity and they have plenty of spending capacity... In the month of March ’22 versus March ’21, the consumers … spent about 13% more than they did last year, but importantly, in the first couple weeks in April, that numbers moved back to 18%, indicating faster spending in consumers", he added. 

The Federal Reserve’s (Fed) plans of rising interest rates fuel expectations of higher banking income when loan rates will also rise for consumers and businesses, but the ultimate consequences of this process are not yet clear due to possible side effects on the economy and therefore on the loan portfolio's stability. Different stocks of the banking sector also have a good chance to resume their bullish trend at some moment thanks to the rising yield of U.S. Treasury bonds, which is now close to 3% for the benchmark 10-year public debt securities. This may increase the total income from bank reserves invested in such assets. However, a wide understanding that yields are still far away from their maximum values and will soon grow much stronger following inflation, gives the demand a strange form of rather postponed or protracted demand, so the market is still very selective in relation to bank stocks and tends to choose the best options.