Bank of America (BAC) is a microcosm of the United States economy. Not only is it the largest in terms of assets, but it's innovative as well. However, during the last 10+ years it grew too quickly, fueled by greed and poor policy, much like the US economy. They inevitably exist through a symbiotic relationship. Therefore, as the relationship unfolds, what hurts one, ails the other. Unfortunately, Bank of America's debt was transferred to the government, thus impairing the overall economy.
The 2001 dot com crash and 2008 housing crises crippled both. Neither has been able to fully recover. Here's a historical chart of BAC and SPY ( Accurate picture of overall health of economy).
1) Beginning in 2001, or the secular bear market, SPY is relatively flat and BAC is down 67%.
2) BAC's stock has provided direction for the overall market.
3) A roughly 40 % difference has existed between SPY and BAC, until recently.
I think a correction to the historical trend between these two is brewing. How? BAC will continue to trend down, with SPY falling faster.
While others see strength in BAC's recent moves, I see weakness. Why would one claim to not need new capital, yet get bamboozled for the backing of Warren Buffett and 5 billion dollars? Why would one sell half their stake in the 2nd largest Chinese bank, a country with a blossoming middle class and skyrocketing GDP, for a measely $3.3 billion profit? Furthermore, adding insult to injury, the FDIC recently objected to their 8.5 billion dollar settlement
In conclusion, recent data has been abysmal. The overall market hasn't yet followed BAC's lead as they have for the past ten years. The current deluge of data seems pretty scary and Bank of America's recent moves offer bearish support. Could be to pay their countrywide case or to remain solvent. Regardless, the correlation will remain intact, and only if Bank of America outpaces the S & P 500, will a true recovery take place. Until then, expect a 27% + decrease in SPY and further erosion in BAC's pps.
* Article was written 8/29
Disclosure: I am short SPY, BAC.
Additional disclosure: Took a small position short BAC , through 9/2 puts, initiated late 8.29.