If you bought Bank of America (BAC -1.71%) stock at any time over the past two years or so, then you're probably feeling pretty good about yourself. Since the beginning of 2012, shares of the nation's second largest bank by assets (click here to see a list of America's largest lenders) have climbed an astounding 111%, making it the best-performing stock on the Dow Jones Industrial Average in 2012.
According to Goldman Sachs (GS -0.45%), however, the rally may soon be over. In a report released yesterday, the investment bank observed that, "The past few years have shown that bank stocks gain over 10 percent in 1Q only to lose 9 percent in 2Q when out-year estimates start to decline." Given this Goldman Sachs purportedly reduced its first-quarter earnings forecast for Bank of America by 15%.
Suffice it to say, if this is true, it isn't good news for investors holding Bank of America stock.
While I'm not convinced by Goldman's logic, the impetus for the fall is nevertheless expected to come from two sources. First, last Friday's jobs report demonstrated that the nascent economic recovery is still sputtering. For the month of March, only 88,000 jobs were added, compared to the 190,000 to 200,000 expected by analysts.
And second, the gradual uptick in mortgage rates is bound to throttle the unprecedented refinancing boom that banks have been exploiting for the past two years. In 2012, Wells Fargo (WFC -0.79%) alone underwrote a staggering $524 billion in mortgages, nearly three-quarters of which stemmed from refinancing -- click here to see a chart of the nation's five largest mortgage originators.
The one saving grace for Bank of America on this front may be its previous underperformance. Since the financial crisis, the bank has focused on scaling its mortgages operations back, eliminating both its correspondent and wholesale channels. As a result, it originated only $79 billion in home loans last year -- less even than U.S. Bancorp (USB -0.06%) which came in at $85 billion.
It's been only recently that the bank has begun to reemphasize this area. This retrenchment, in turn, while painful, will certainly make it easier for Bank of America to show gains in the short term while others like Wells Fargo may indeed face volume-related headwinds.
What's this mean for Bank of America stock? Your guess is as good as mine. With a beta of 1.78, it's one of the more volatile securities on the Dow. But this is something we've lived with for the past five years. So even if it does go down, shareholders are likely acclimated to its capricious ways.
The important thing is avoid losing your nerve. Barring some unforeseen catastrophe, Bank of America stock will soar even higher in the future (and likely pay a generous dividend to boot). At least in my opinion, it's not a matter of if, but when.