Bank Of America: Here's What's Driving Earnings And The Stock Price

Chris B Murphy profile picture
Chris B Murphy
3.66K Followers

Summary

  • Bank stocks like Bank of America have risen and fallen on the back of Treasury yields.
  • However, this isn't the first time Bank of America has surged as a result of the 10-year yield. Today's market is eerily similar to that of 2012 to 2013.
  • By analyzing the past and the present, we can see that it's not enough for yields to simply rise, but instead, net interest income must rise as well.

With earnings season fast approaching, it's a good time to take a step back and analyze the run-up in bank stocks to see how far we've come, but also to see if the financial performance will justify the current market valuations or exceed market expectations.

In this article, we'll look at the impact of the 10-year Treasury yield on net interest income, and ultimately on Bank of America Corporation's (NYSE:BAC) stock price.

Please keep in mind: This article is not a comprehensive analysis of Bank of America. I am not a financial advisor, and we will only be analyzing a few of the many fundamental and economic factors that go into driving the stock price and profitability of BAC. Before making any investment decisions, please contact your financial advisor for more in-depth coverage of BAC. And of course, any analysis of past performance does not equate to future results.

By analyzing bond yields and stock price behavior in prior periods, we might gain insight as to how yields can impact loan spreads and ultimately the stock price for one of the largest banks in the country.

Bank stock performance and the 10-year Treasury yield:

For anyone who is still on the fence as to whether Treasury yields can drive bank stock prices, including BAC, please see the charts below.

Although the correlation is not one-to-one, and the correlation can break down from time to time, there's a clear pattern of price behavior in response to the rise and fall of the 10-year Treasury yield.

BAC Chart

BAC data by YCharts

Bank of America is not the only bank that correlates well to yields.

Below is a chart of the performance since July of financial ETFs like the SPDR S&P Bank ETF (KBE) and the Financial Select Sector SPDR ETF (

This article was written by

Chris B Murphy profile picture
3.66K Followers
Hello. I'm a financial writer/blogger & market risk analyst with 15 years in the financial services industry including over 10 years on trading desks of two major banks. --------------------------------------------------------------------------------------------------------------------- My Top-Down meets Bottom-Up Approach to financial analysis includes: ----------------------------------------------------------------------------------------- How Macro Trends & Economic Indicators, Bond yields, Capital flows, & The Fed - Drive Sectors & ultimately Individual Stocks. - Financial analysis of Bank stocks, Commodities, Industrials, & Tech. - Former currency risk advisor to Corporates, with Options and risk policy experience.- Published Work includes: Financial analysis (Investopedia); - Retirement Income (RetirementIncomeAnalyst.com) & Wealth Management Firms. - Hold an Economics degree with a concentration in Finance (University of Rhode Island).

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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