Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Bank of America Corp. Are Soaring on Tuesday

By John Maxfield - Mar 1, 2016 at 1:55PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The nation's second largest bank by assets is particularly well-positioned to benefit from the day's positive economic news.


Image credit: iStock/Thinkstock.

Shares of Bank of America (BAC -0.83%) are up more than 5% halfway through the afternoon on Tuesday, as positive economic news rallied bank stock investors behind the nation's second biggest bank by assets.

Reports out this morning show that automakers had their best February results in nearly a dozen years. Ford led the way, with sales growing last month by 20% year-over-year. Ford's SUV sales climbed even more, growing by 28% compared to February 2015 and resulting in the best February for SUV sales in the company's history.

Other automakers reported similarly upbeat results. GM said that retail sales of Chevrolet vehicles were 13% higher than in February 2015, while Cadillac sales grew by 4% and Buick sales were up 2%. Nissan said that its light vehicle sales increased by 11%, while SUV sales increased 14%. With respect to the latter, it was the best February on record for Nissan.

Adding to the positive news from the auto industry was a report from the Commerce Department showing that construction spending in January was the highest it's been since October 2007. State and local infrastructure projects increased construction spending by 1.5% in the first month of 2016, handily outpacing the consensus forecast for a 0.2% rise.

Finally, manufacturing data from February soothed concerns about the ongoing economic recovery. The Institute for Supply Management's monthly manufacturing index came in at 49.5 last month, the organization said Tuesday. While that figure reflects manufacturing activity that is still mildly contracting -- a reading above 50 implies expansion -- it was nevertheless a significant improvement over January's score of 48.2.

The latest news out of the broader economy is good for Bank of America for two reasons. First, a healthy economy spurs loan demand, which in turn begets loan growth. And second, if the economy continues to improve, the Federal Reserve will be more inclined to continue raising interest rates. This would translate into higher profits for banks, as their loan portfolios would benefit from higher yields.

Bank of America's stock in particular was positioned to benefit from all these factors. Shares of the nation's second biggest bank by assets have fallen by 22% since the start of the year, and are trading for a 44% discount to their book value, according to Yahoo! Finance.

On top of that, Bank of America sports one of the highest betas in the bank industry. Its beta of 1.76 means that its shares move by 76% more than the typical stock does on an average day. Today, for instance, while the S&P 500 is up 2.1% at around 1:45 p.m., Bank of America's shares are up 5.1%.

In sum, while positive economic news like today's can be fleeting, there's no question that shareholders in Bank of America, myself included, will welcome the respite given the recent performance of the stock.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Bank of America Corporation Stock Quote
Bank of America Corporation
BAC
$30.98 (-0.83%) $0.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
322%
 
S&P 500 Returns
113%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.