Bank of America (BAC) shares reached an all-time closing high of $57.91 on Tuesday, gaining 0.94% and surpassing the prior record of $57.37 set on Monday. The advance came as BofA Global Research issued the most aggressive Federal Reserve rate hike forecast among major global brokerages, while Citigroup raised its price target on the stock to $66, implying approximately 14% upside from the latest close.
The broader market showed mixed performance. The S&P 500 slipped 1.44%, while the Financial Select Sector SPDR Fund (XLF) edged up 0.30%. Among other large banks, JPMorgan Chase (JPM) rose about 0.8%, but Citigroup (C) fell roughly 0.4%.
Hawkish Rate Outlook
BofA Global Research economists now expect the Federal Reserve to hike interest rates by 25 basis points in each of September, October, and December, totaling a 75-basis-point increase. A basis point equals one-hundredth of a percentage point. This call is the most hawkish among major global brokerages; markets on Monday had priced in only about 41 basis points of hikes.
BofA economist Aditya Bhave stated, “The data call for hikes,” noting that inflation has “gotten unambiguously worse” and the labor market has firmed. The research call, however, is not management guidance but reflects the firm's economic outlook.
Deposit Advantage and Rate Sensitivity
Bank of America's low deposit cost provides a potential earnings tailwind if loan and securities yields rise faster than funding costs. The consumer bank paid an average rate of just 0.51% on its $950.8 billion in deposits during the first quarter. Net interest income (NII), the difference between interest earned and interest paid, stood at $15.7 billion in Q1.
The bank's filings disclose that a parallel 100-basis-point decline in rates below the March 31 forward curve would reduce NII by $2 billion over 12 months, or about 3.2% of the annualized run rate. However, this sensitivity is a modeled downside scenario and does not directly imply that 75 basis points of hikes would add $1.5 billion. The actual impact depends on deposit pricing, hedging strategies, and yield curve dynamics.
Analyst Upgrades and Volume
Citigroup raised its Bank of America price target to $66 from $62 on Tuesday, citing the potential for higher net interest income and improved trading revenue. The record close occurred on relatively light volume, with about 29.8 million shares traded, representing 81% of the 65-day average.
Upcoming Stress Test
Investors are awaiting the Federal Reserve's annual stress-test results for 32 large banks, scheduled for release Wednesday at 4 p.m. EDT. The test simulates a sharp global downturn with significant losses tied to commercial and residential real estate and corporate debt. This year's results will not alter capital requirements or payout restrictions, but Bank of America investors will focus on projected credit losses and the trough in its common equity tier 1 (CET1) ratio. The bank ended Q1 with $200 billion in top-quality capital and an 11.2% CET1 ratio.
Risks and Outlook
Trading revenue offers another potential boost. Co-President Jim DeMare said earlier this month that second-quarter markets revenue may exceed the bank's prior forecast of 15% growth, with much of the activity coming from the equity business. However, gains from rate trades could unwind if deposit costs rise faster than asset yields, the yield curve flattens, loan growth slows, or stress-test losses prove steeper than expected. Additionally, if the Fed raises rates less than BofA economists project, the upside may be limited.
