As investors began to become less positive towards the new administration under President-elect Donald Trump, bank shares plummeted on Tuesday, including a 3.6% loss coming from JPMorgan Chase & Co., 3.8% from Morgan Stanley, and the Bank of America Corporation (BofA) slipping over 4.0%.
At the close of Tuesday’s session, the BofA stock shed 4.17% to trade at $22.05 . The stock had been fairly doing well especially after the November US presidential election , in which Trump’s victory had brought a surge to the financial sector. In recent weeks however, BofA stock remained suspended in the range between 23.22 and 21.98 , and indicators are now hinting on a bearish tone for the stock specifically for shorter time frames.
A handful of factors can be attributed to this decline of the BofA stock on the eve of the presidential inauguration coming this Friday, but there are two factors in particular that emerge as the primary players in dragging the bank stock down. Here’s FSMNews to bring you the latest story on the Bank of America and the financial sector for Wednesday.
Weakening investor sentiment
Analysts claimed recently that investor confidence in the incoming Trump administration may be diminishing. The News Implied Sentiment Indicator, an index that attempts to gage and capture this, has overturned most of its post-election surge.
While the metric proves to be a crude measurement as it gages the number of news stories that contain the words “bullish” and “bearish”, bank stocks may still gather useful insight from it.
Stocks of the biggest banks in the US soared in the wake of the November presidential election; a Republican-led federal government lined with pledges during the campaign trail to roll back regulations and ramp up economic growth via tax cuts and infrastructure spending convinced investors that banks could soon begin to earn more.
Few banks stand to benefit as much as BofA, which has witnessed its shares increase 30% over the past two months. Higher interest rates stimulated by faster economic growth would lift BofA’s top and bottom lines more than any other big bank.
Furthermore, because of its blunders that led up to the financial crisis, the North Carolina-based bank has been monitored heavily by regulators ever since. This event had accelerated its compliance expenses and hampered its ability to return capital to shareholders.
The question lies now on whether investors were too positive that the new US President will be able to live up to his campaign vows. But with no clear answer to this yet, a sharp downturn in bank stocks in the previous session and analysis of waning investor sentiment, it is suggested that investors are becoming less confident in their expectations.
The second key factor that weighed on the BofA stock in yesterday’s session relates to the Supreme Court after its refusal to consider a plea. The US court declined to hear an appeal filed by three major banks, including the Bank of America, Citigroup and JPMorgan Chase, contesting antitrust lawsuits accusing the named banks of collaborating to manipulate a key short-term interest rate benchmark, the London Interbank Offered Rate (Libor), going back decades.
The decision of the Supreme Court leaves BofA and other banks exposed to potentially billions of dollars' worth of damages suffered by investors who held securities tied to Libor.
“The wrong result here could be economically devastating,” the banks reasoned.
There is still the possibility of the case being dismissed or settled, but the added uncertainty with the lawsuit is never a positive element for stocks.
Overall, the BofA stock will be bearish, but remains to be a very good stock to own nonetheless for the long-term. Investors should keep in mind that the road towards that will be rough, such as the current situation it is in right now.
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