With the Federal Reserve’s (Fed) battle against inflation by raising the interest rates, financial stocks have had the spotlight put on them. One of the biggest banks, Bank of America (NYSE: BAC), is well-positioned to either benefit or suffer from the Fed’s aggressive policies.
Throughout history, higher rates offer better margins for financial firms; yet, if the economy enters a recession, high-interest rates will do little for the profitability of the financials.
Meanwhile, BAC recently hit 52-week lows, and market participants could rightfully inquire whether now is the best time to buy the company’s shares.
BAC chart and analysis
On the whole, recent trading sessions have seen noticeable increases in trading volume while the stock hovers around February 2021 lows. Currently, the shares are below all daily Simple Moving Averages (SMAs) trying to establish a trading channel.
BAC is presently displaying a bear flag pattern, which occurs when prices pull back slightly after a strong move down. This may present a good short opportunity to short the stock.
Alternatively, for traders looking to make an entry a support zone ranges from $31.45 to $31.91, while resistance is observed between $34.80 to $34.99 formed by a combination of trend lines and moving averages in the daily time frame.
Consequently, analysts on Wall Street rate the shares as a moderate buy, predicting that in the next 12 months, the average price could be at $46.17, which is 40.51% higher than the current trading price of $32.86.
To buy or not
A possible economic downturn could put pressure on the consumers and their spending habits, which in turn will pressure on key parts of the bank’s business, especially the extensive credit card holdings. In essence, the situation with the economy is quite complex, which could be one of the main reasons the stock is down over 28% year-to-date (YTD).
It seems that the stance taken by the Fed and the actions it takes to combat inflation will be the most significant factor in determining whether or not the stock will experience a possible upswing.
Traditionally, sharp rate hikes can lead to recessions, and if that happens, more pain could be seen in the share price.
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.