But nothing great happens before time too.
2008 crisis destroyed wealth in Large Cap financials like no other sector. And despite a huge comeback in other sectors of the economy in following 5-6 years - Banks remained big underperformers. Here's Bank of America stock chart in July 2015
Large Banks in US still trading way down compared to 2008 peak. Bank of America right at resistance now pic.twitter.com/mo1IB12x1E
— Deepak Singh (@smarket) July 30, 2015
As you can you see in the chart above - Bank of America stock had created a huge resistance at $18. Large cap Banks were the dirty place to be in with Democrats still talking of stiff regulations and even breaking big banks. Nothing much changed on charts few months later except HOPE
Will new Bull market start in Financials?
Bank of America on verge of major breakout pic.twitter.com/Ojm7L1EIoq
— Deepak Singh (@smarket) October 29, 2015
The HOPE: US Fed sooner or later will hike interest rates and Bank of America is best positioned to take advantage of it. As per Bank of America calculations
A 100-bps (basis points) increase in both long- and short-term rates will rake in an additional $4.55 billion to annual net-interest income ~ Bank of America
Despite all hope - 2016 did not start well and Negative Interest rates talk dominated globally till Brexit. But then in July again things started looking up
Will Large Banks drive the next phase of US Bull market - pretty interesting move in Bank of America stock?
— Deepak Singh (@smarket) July 19, 2016
Rate hike by Fed in US started looking like certainty and the only roadblock was election
Bank of America stock pricing in rate hike...good rally pic.twitter.com/BvEfGDAMEd
— Deepak Singh (@smarket) August 31, 2016
Bank of America stock has rallied 11% in August and still considered as the best stock to play "rise in interest rates" by Fed
— Deepak Singh (@smarket) September 4, 2016
Here's what I wrote on Nov 08 before election result announcement:
Here’s one sector ready to run post Hillary win https://t.co/k0Lq0g7SWF
— Deepak Singh (@smarket) November 8, 2016
Argument: There is HOPE that Bull market will continue. US Fed will hike rates in Dec and it will benefit Financials. So, let's see what happens
There was an upset. Hillary did not win but the idea still won. Bank of America and Large Cap Financial ETF turned out to be big winners as they broke out.
Just remember how painful was the period before breakout for Bank of America investors and hence don't get surprised if they get handsomely rewarded for that patience in next 12 months. That's how things work in markets. Obviously there is no guarantee.
I hope you found the story useful.
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers