What happened

Bank of America (BAC -1.48%) was not immune to the stock market sell-off in April as its stock price dropped 13.4% in the month, according to data provided by S&P Global Market Intelligence.

The megabank trailed the S&P 500, which was down 8.8% in April, and was roughly on par with the Nasdaq, which was down 13.3% for the month. Bank of America is down about 16% year to date as of May 3.

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So what

Bank of America, the nation's second-largest bank, was not alone in its underperformance, as the KBW Nasdaq Bank Index was down about 12% in the month.

One catalyst in April was the release of Bank of America's first-quarter earnings report. It was a solid report as the company beat analysts' expectations with $23.2 billion in revenue and $7.1 billion in net income, or $0.80 earnings per share. However, both of those numbers were down year over year.

Bank of America saw revenue within its consumer banking business climb 8% to $8.8 billion, with a big boost from deposits, which were up 14% year over year to a record $1.1 trillion, while average loans were down 2% year over year. Overall, net interest income climbed 14% year over year to $11.6 billion, driven by deposit growth and higher interest rates. Also, the efficiency ratio in consumer banking was 56%, up from 53% at the end of the year, but down from 64% after Q1 2021.

But the bump it got from a solid earnings report was reversed after the Commerce Department released a report late in the month that said the gross domestic product (PDP) declined at a 1.4% annualized pace, when it was expected to grow 1% in the first quarter. That sent bank stocks down, sparking new concerns about a recession.

Now what

Bank of America should see a boost as the Federal Reserve Board meets this week and it is very likely that it will raise interest rates, perhaps even 50 basis points, which would be the biggest single hike since 2000. This will be done to try and offset the economic effects of inflation.

Higher interest rates typically benefit banks, as they allow banks to generate more interest income. However, higher rates also increase borrowing costs and if inflation doesn't slow down and the economy goes into recession, that could potentially curtail the pace of lending and negatively impact interest income.