Actions of Bank of America (NYSE: BAC) grew nearly 12% last month, according to data provided by S&P Global Market Intelligence, as investors anticipated a possible end to the coronavirus pandemic.
Bank shares tend to perform well as the economy strengthens, when demand for loans increases and default rates fall. In addition, interest rates have risen alongside investors’ expectations for a recovery, a dynamic that generally increases bank profit margins. With the United States and other countries stepping up their COVID-19 vaccinations and stimulus measures, many market watchers expect these trends to continue in the months to come.
Along with these macroeconomic factors, cost reduction initiatives and technology investments benefit Bank of America’s profitability. The banking giant has closed underperforming branches in recent years and spent more of its spending on its mobile app. With more and more people banking online every day, these steps should help strengthen Bank of America’s competitive position.
Bank of America’s stock price is now up 30% so far in 2021, but its shares still only trade about 1.3x book value and offers a strong dividend yield of 1.8%. With earnings set to rise further as the economy continues to recover, investors can expect this leading banking leader to post even more share price gains in the coming months.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.