A 35% rally since October meant that Bank of America (NYSE: BAC) shares finished the year on a high after what was, at best, turning into a mediocre year before that. Shares of the Wall Street titan have been on the back foot since they peaked in February of 2022, and indeed, it was only this past October that the bears ran out of steam after a 50% slide.
But with shares having recovered almost all of 2023’s losses in the past few weeks, they’re in great shape to continue rallying into the new year. This bullish outlook has been shared by several analysts recently, with some expecting their shares to rally to fresh all-time highs in the near term.
Bullish tailwinds
Much of the renewed optimism stems from the growing likelihood that the Fed will start cutting rates in 2024. It’s looking more and more likely that they’ve managed to thread the needle and get inflation under control without causing a recession. While higher rates are, on paper, good for banks, the prospect of falling rates is likely to boost bank asset values and real equity.
This was the primary pillar in Odeon Capital’s decision to upgrade Bank of America last month when they upped their rating on the stock from Hold to Buy. With a return to normality in the yield curve also expected, that being where short-term rates drop and ideally stay below long-term rates, Bank of America’s net interest margins should also receive a solid boost.
A similar bullish stance was taken by the KBW team last quarter when they upgraded their rating on Bank of America and, even more recently, by the Barclays team earlier this week. They reiterated their Overweight rating and boosted their price target on Bank of America shares by 10% to $43. From where shares closed on Wednesday, that’s pointing to a further upside of at least 30%.
Were shares to hit that in the coming weeks, they’d have undone almost all of 2022’s slide and would be closing in on the all-time highs that investors are expecting. With their Wall Street competitor, JP Morgan Chase & Co (NYSE: JPM), having had its highest-ever close on Tuesday of this week, Bank of America investors are well entitled to expect something similar in the near future.
Targeting an all-time high
Beyond even Barclays' bullish expectations, we have Oppenheimer’s street-high price target of $51, also driving shares on into the new year. This has Bank of America shares not only rallying 55% from current levels but above 2022’s all-time high and so in blue sky territory.
It’s worth noting that risks do remain, however. Basel III Endgame, for example, is a proposed update to global capital standards, which could drive a dramatic change to the existing risk-based capital framework in the US. It would force banks to eliminate risk-weighted assets while setting higher capital requirements and causing an increase in compliance costs.
Alongside this, consumer lending banks like Bank of America are facing the prospect of weak loan growth in credit cards, automotive, and commercial real estate. So, there are plenty of potential headwinds on the horizon to keep management busy. But on the whole, the expected tailwinds should more than make up for these, and Bank of America shares should continue rallying over the coming months.
Right now, the stock’s relative strength index (RSI), a measure of how overbought or oversold a stock is, is verging on the former, so some consolidation wouldn’t be a bad thing. This would allow shares to form a new base around the $33 mark, which would, in turn, give them a good starting point to kick off the next stage in the rally. If that can happen, then the $43 and even the $51 price targets become quite achievable.
