No stock trading sector is more sensitive to the economic cycle than the banking sector. Banks, after all, are at the center of business activity, making loans for capital projects or mortgages, and taking on more deposits as the economy grows. If the economy changes, banks will be one of the first stocks to see the effects.
The economy is divided on how it is going to be in the future.
Although Moynihan's remarks may not constitute a ringing endorsement for an economic recovery, they are about the most bullish remarks we've heard lately from a major financier. Jamie Dimon, JPMorgan Chase's chief executive, said it was a mistake to expect the resilience in the U.S. economy to remain for years.
The average GDP forecast now recommends a 2.1% growth this year, 1.5% growth next year, and 1.8% in 2025 and beyond.
The new personal consumption expenditures report, which serves as the Fed's preferred inflation gauge, should also help alleviate fears of higher rates and a recession, as core PCE fell to 3.9% year-over-year in August from 4.3% in July.
Moynihan said that his bank's commercial customer credit quality is really strong. Is Bank of America stock a buy right now?
We won't get an update on Bank of America's third quarter for a couple of more weeks, but there are some other data we can use to assess the company's latest performance.
CFO Alastair Borthwick said the company would still expect $14.2 billion to $14.3 billion in net interest income for the third quarter, even with the second-quarter result.
Borthwick also portrayed much of the business as strong, calling the consumer side 'terrific' and noted that BofA had the lowest credit losses of any bank in 11 of the last 12 Fed stress tests, a credit to the bank's management and the group of customers it's assembled.
The economy remained consistent from the second to third quarter, with earnings per share rising 21% to $0.88, and the earnings per share rose 21% to $0.88. The company's decreasing forecast of a recession should help slow down the growth of its loan-loss reserves, which reached $1.1 billion in the second quarter. If it factors in this improved forecast, its delinquency models should improve, which will help lift profitability.
Bank of America stock looks well-priced, trading at a price-to-earnings ratio of just 7.9. That's cheaper than it's been in any point in the past decade, except a brief dip when the pandemic started.
The decline in earnings multiples suggest that a recession may be coming, but if it doesn't materialize, Bank of America could be trading at a much higher multiple in a year.
If you agree with Moynihan's analysis that recession is no longer a threat, the bank stock looks like an easy lay-up at the current price.