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Why Bank of America Is Booming Today

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Three and a half hours into the trading day, Bank of America (NYSE: BAC  ) shares are up 3.1% on strong second-quarter earnings and some reassuring words from the Federal Reserve.

Wall Street and Washington weigh in
B of A is reporting that net income rose 63% year over year, from $2.5 billion to $4.0 billion, while total revenue increased 3.2% year over year, from $22.0 billion to $22.7 billion. Earnings per share are $0.32, beating analyst expectations of $0.25.

Over on Capitol Hill, Fed chairman Ben Bernanke is testifying to the House Committee on Financial Services on U.S. monetary policy. His comments indicate that the central bank will still begin tapering QE later this year, so long as the American economy continues trending in the right direction, but that the Fed believes the economy is still clearly not where it should be.

Foolish bottom line
The markets have waited with baited breath on the words of Federal Reserve chairmen for years now, and have responded either calmly and coolly, or flown completely off the handle. Today, investors have taken the former road, the one not often enough taken, and have responded to Bernanke's comments with the equanimity they deserve.

He didn't say anything today he hasn't said since the Fed's last policy setting meeting in June. But I think the message is finally getting through to the markets that just because there's a plan in place to dial back quantitative easing doesn't mean it's happening tomorrow. Nor does it necessarily mean it's going to happen at all; tapering remains dependent on whether the economy continues to improve.

That said, the real energy behind B of A's strong performance today is its strong second-quarter earnings. In addition to what was mentioned above, the bank also saw more business from equities sales and trading.

Unfortunately, some of the bank's immense increase in profit was the result of cutting costs, but we all know you can only cut so much fat before you start cutting into muscle. A 63% increase in profit on 3.2% of revenue growth is very likely unsustainable. That said, it's good to see some revenue growth. In the first quarter, revenue growth was generally pitiful for the big banks.

But as always, remember that investing Foolishly means investing for the long term: tuning out market noise and tuning into the fundamentals of the companies you're invested in. Check in on your stocks once a month, or even once a quarter, and leave the daily ticker checks to the day traders: Your broker may not thank you, but your portfolio definitely will. 

Many investors are terrified about investing in big banking stocks after the crash, but the sector has one notable stand-out. In a sea of mismanaged and dangerous peers, it rises above as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.

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9/27/2016 4:00 PM
BAC $15.29 Up +0.20 +1.33%
Bank of America CAPS Rating: ****