Daily Stock Pick: April 22nd, 2022

Stocks were little changed this morning after dramatically shifting course yesterday, erasing early gains to finish the session lower.  Before the opening bell, the S&P 500 was up less than 0.1% for the week, the Dow was up 1%, and the Nasdaq was down 1.3% and on track to post its third negative week in a row.  

Investors seemed cautious after comments made by Fed Chair Jerome Powell pointing to a larger-than-expected rate hike for May.  “It is appropriate in my view to be moving a little more quickly” to raise interest rates,” said Powell.  I would say 50 basis points will be on the table for the May meeting,” he continued.  

Wall Street strategists expect a bumpy road ahead for stocks as the Fed tightens its policy.  The median year-end target for the S&P 500 now stands at 4,900, down from 5,100, representing a gain of only 8% from yesterday’s close.  

Today we’ll discuss a stock likely to do well as the Fed heightens its defense against surging inflation.  

Bank of America Corporation (BAC) provides banking and financial products and services for individual consumers, institutional investors, large corporations, and governments worldwide. It operates through the following segments: consumer banking; global wealth & investment management; global banking; and global market segments.

Thanks to its global investment banking and financial services portfolio, most are familiar with this financial titan.  In the U.S., BAC currently operates via 4,300 retail financial centers, 17,000 ATMs and digitally serves 41 million active users. Furthermore, the company is also present in 34 other countries across the globe.

After more than doubling since its pandemic-era low, let’s take a look at the factors that could boost BAC going forward.  For one thing, the Fed has signaled up to 11 rate hikes through the end of next year. The fed funds rate is now expected to peak at 2.75% to 3% by September 2023.  This should help BAC increase its interest income.  Zooming in a little closer, according to Globe Newswire, the global financial services market is expected to grow at a 9.9% CAGR to hit $22.5 trillion this year.    

“We think Bank of America and the industry as a whole will have the best growth in that category [traditional banking revenue] in over three decades, and that’s super-powerful,” said Wells Fargo analyst Mike Mayo. “And it’s even more in place after the news from the Fed when they announced they’re going from six rate hikes through the end of next year up to 11.”

Jim Cramer recently cited Bank of America as one of the potential beneficiaries of rising rates.  He thinks that BAC will “make a killing if the Federal Reserve is forced to tighten.”If you need another reason, consider BAC’s uninterrupted 21-year history of rewarding investors through dividends.  The company recently raised its quarterly dividend to $0.21 per share, up 16.7% from the previous quarter.

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