Bank of America (NYSE: BAC) Among The Best Of The Bunch

As most equities spent Monday’s session taking a breather after finishing at all time highs last week, shares of Bank of America (NYSE: BAC) found themselves up 1.6% and closing at a post-COVID high. They’ve been on a solid run for the past couple of months, easily outpacing the S&P 500 index since May for a 54% run to the latter’s 32%.

They’ve taken some solid momentum with them into 2021 and investors will be expecting them to complete the recovery of last year’s crash in the coming months. Were they to do this, it would also put them at a post-2008 high, which is a nice carrot to have dangling in front of management. Based on recent updates, you’d find it hard to bet against them doing so.

Upgraded By Peer

Bank of America’s financial neighbor Citigroup (NYSE: C) started the week off on a positive note for them with an upgrade out of the blocks on Monday. They moved Bank of America shares from Neutral to a Positive rating and upped their price target from $31 to $37, which suggests there’s still upside of more than 10% to be had from Monday’s close.

Citi’s move comes less than a week after Wolfe Research also upped their rating on Bank of America to Outperform. Analyst Steven Chuba sees them being the strongest of the big financials and in particular are well "insulated" from capital markets normalization. What seems to be underpinning these moves is a steady uptick in the 10-year Treasury yield, which only last week climbed above 1% for the first time since last year’s crash. A steepening yield curve is considered a major tailwind for banks, which will be a relief for investors as they’ve had to plod along as best they can for some time without it now.

Additional macro based tailwinds such as a weakening dollar are also starting to gather some pace. USD/GBP is down more than 6% since September, USD/EUR is down nearly 5% since November, while the USD/JPY is down that much since June. These are all bullish signs for Bank of America investors, as historically a weaker dollar has been a boon for bank stocks. It tends to lead to a steepening yield curve (see above) and allows lenders to get cash at low, short-term rates and then lend it out to borrowers at higher, longer-term rates.

Macro Tailwinds

This trend has been a long time coming after the greenback soared against the other majors last March, as investors fled equities for safer assets. Indeed, it’s a testament to Bank of America that they managed to close last year out at the highs that they did, outpacing the S&P 500 while they did it, while they lacked their traditional tailwinds for most of it.

The recent rollout of COVID vaccines has done much to assuage investors’ fears and regulators’ worries about the heavyweights of Wall Street’s ability to ride out the pandemic. At the lows of last year, they’d been asked to shore up their bad loan provisions while share buyback programs had been banned. The unwinding of both of these restrictions in the past month or so has done a lot to improve the outlook for banks in 2021 and we’re seeing that reflected in recent share price action.

All the factors are now in place for 2021 to be a banner year for them and there’s every reason to think that Bank of America will soon close the 8% gap to get back to their decade highs.