Bank of America Shares Leap, but Can They Sustain Their Bull Run?
In a stunning market turnaround, Bank of America (BAC) has seen its stock price surge by 52% since late October 2023, a performance that has significantly outstripped the S&P 500’s 28% rise. This impressive rally comes despite the backdrop of record profits amidst sharply higher interest rates. Yet, even with these gains, BAC's financials reveal some areas of concern. The company's earnings per share have been on a downward trend for the past two years, with net income experiencing a slide in both 2022 and 2023. Furthermore, there's been a notable increase in net charge-offs for both consumer and commercial loans, nearly doubling from the previous year. As delinquencies and charge-off rates escalate across US banks, the financial sector finds itself at a pivotal juncture.
As Bank of America's stock approaches the critical $38-$40 resistance area, market watchers are keenly observing for any signs of a breakthrough or pullback. This price range has historically been a tough nut to crack for BAC, often precipitating significant pullbacks. Despite this, the bulls have managed to push through this barrier on three notable occasions in 1998, 2003, and 2021. This track record leaves investors pondering if a similar breakout is on the horizon or if the law of averages suggests a looming pullback.
Employing Elliott Wave analysis, the stock's trajectory from over $50 to under $25 is identified as a leading diagonal, hinting at a potential major sell-off in the offing. This analysis is bolstered by the 1-hour chart, which displays a clear triangle correction, further validating the bearish forecast.
Given Bank of America's current P/E and price-to-tangible book value ratios of 12 and 1.55 respectively, the stock appears fully valued in the market, suggesting that any further gains might not be based on fundamental undervaluation but instead on market sentiment. This scenario posits a risky proposition for investors banking on BAC's continued ascendancy.
As the stock market reacts to these intertwined factors of performance, valuation, and technical analysis, the looming question remains: Can Bank of America maintain its bull run in the face of these challenges, or is the financial giant headed for a significant market correction? The answer to this question will undoubtedly influence investor sentiment and market dynamics in the coming weeks.
Analyst comment
Positive news: Bank of America’s shares have surged by 52% since late October 2023, outperforming the S&P 500.
Negative news: Earnings per share and net income have been declining, with an increase in net charge-offs for loans in 2023.
Neutral news: Bank of America’s stock is approaching a resistance area, leaving investors uncertain about a breakthrough or pullback.
As an analyst, it is likely that the market will closely watch Bank of America’s stock as it approaches the critical $38-$40 resistance area. There is historical evidence of significant pullbacks in this range, but there have also been breakthroughs in the past. The use of Elliott Wave analysis suggests a potential major sell-off, while valuation ratios indicate that the stock is fully valued. Given these factors, the market may experience increased volatility in the coming weeks as investors assess the sustainability of Bank of America’s bull run.
