Yahoo Finance Bank of America Corp (BAC) Stock Has Been ‘Trumped’
Bank of America Corp (NYSE:BAC) is a major investment that neither the bulls nor the bears got decisively right. Although BAC stock seemed a no-brainer when Trump took a surprise election victory last November, the end result disappointed. For instance, Bank of America shares are up nearly 8% year-to-date. But this is essentially the same performance you would get holding the tried-and-true SPDR S&P 500 ETF Trust (NYSEARCA:SPY).
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Everybody on Wall Street aims to beat the benchmark, which was what BAC stock did last year.
With a thunderous 37% return in 2016, plenty of investors expected the Trump administration to make bank stocks great again. And to some extent, the former real-estate tycoon turned president has been helpful for the majors. The problem is that the benefits have been spread sporadically.
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King of the big banks JPMorgan Chase & Co. (NYSE:JPM) is doing okay, up 6% for the year. On the other hand, Citigroup Inc (NYSE:C) is doing a noteworthy job, gaining nearly 14% YTD. The conspicuous loser is Wells Fargo & Co (NYSE:WFC), which is down 5%.
For all the fervor regarding Trump and his vast, business acumen, it hasn’t translated to robust gains for Bank of America and its competitors.
Don’t get me wrong: I, of course, acknowledge that the bulls are so far correct in supporting BAC stock. But it’s fair to point out that perhaps much enthusiasm for Bank of America may have already been priced in.
Washington Isn’t Helping BAC Stock
As InvestorPlace contributor Bret Kenwell noted last month, BAC and the financial industry skyrocketed after the election. Why? “Two main drivers drove this rally. The first was that Trump, a Republican, is likely to roll back Dodd-Frank and make for a looser regulatory environment. While we saw exactly where loose laws can get us in the banking sector, investors are also aware of the rewards.”
The other catalyst is the president’s pro-business track record. Generally speaking, Republicans are known for their policies of less onerous taxes. The idea here is that more cash in the hands of American families will spark money velocity. Business both large and small will grow stronger, which in turn promotes increased hiring. Everybody is happy.
Except that such Reaganomics-esque thinking doesn’t always work out so neatly in the real world. I’m not criticizing the president nor am I questioning traditional Republican policies. Rather, the existence of previously unaccounted factors is beginning to challenge political assumptions.
Kenwell and other analysts are correct that BAC stock would thrive under fewer regulations. But Washington insiders constantly attack the Trump White House, from the major issues (ie. healthcare) to the mundane (taxes). The biggest success Trump enjoyed is the confirmation of Supreme Court Justice Neil Gorsuch. But this success was also tremendously contentious, and required a so-called “nuclear option.”
Fake news or not, the current administration faces unprecedented obstacles. Not even a full year in, President Trump suffered yet another call for impeachment. In all fairness, I think this is more noise from the left. But it demonstrates Washington’s fractured condition, and the unwillingness to work together on anything.
If political animus is so magnified that American healthcare must suffer, I can’t imagine Washington uniting for financial deregulation.
The Economy Isn’t Helping Bank of America
Bank of America investors also need to consider objective, economic indicators. BofA, like other bank stocks, soared under the assumption of higher interest rates. But this year, the 10-year U.S. Treasury yield is down almost 11% YTD. Despite Trump’s hawkish rhetoric, we’re seemingly headed towards the dovish days of former U.S. Federal Reserve Chair Ben Bernanke.
I also take labor market numbers with a grain of salt. The president loves to brag about how he brought jobs back inside our borders. I cringe when I hear this because no one man, no single policy, could ever spark job growth so quickly. For the record, I’m an equal-opportunity critic: I also cringed when the left praised former President Obama for the very same thing.
Cheap political points don’t fly with me. If you’re going to take credit for the labor market, then you have to take criticism for other sectors. For instance, consumer sentiment consistently declined since Trump took office.
And this is the story behind the story. BAC stock was supposed to move convincingly higher under the new administration. But the economy isn’t nearly as strong as advertised. Furthermore, our government and our people are so divided that we can’t get anything done. Because of this dynamic, tailwinds for Bank of America fell short of their target.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
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