BAC Shares Outpace the S&P 500 in 2025: Will Momentum Hold in 2026?

Bank of America shares rose 24.1% in 2025 (extending a 30.5% rally from 2024) but trailed peers JPMorgan (+34.4%) and Citigroup (+65.7%). Management projects 5–7% NII growth for 2026, targets loan/deposit CAGRs of ~5%/4%, and highlights a fortress liquidity position with $961 billion of average global liquidity (as of Sept. 30, 2025), an 8% dividend increase to $0.28, and a $40 billion buyback program ($4.5 billion quarterly target). Headwinds include deteriorating asset quality (provisions and net charge-offs jumped materially over 2022–2024 and into 9M25) and macro/ tariff-related uncertainty; Zacks consensus EPS sits at $3.80 for 2025 and $4.33 for 2026, and the stock trades at a 12-month trailing P/TB of 2.01x versus the industry 3.18x.

Analysis

Market structure: Falling-for-longer rate expectations and Fed cuts (consensus: three cuts in 2025 already; watch next 6–12 months for additional 50–100bp) create a two-speed win/loss for banks. Winners: fee-rich, capital-light franchises (JPM) and banks with strong buyback/dividend engines (BAC) in the near term; losers: NII-heavy exposures if 10yr yield compresses >50bp over 3 months, pressuring BAC/C margins. Branch-driven deposit growth (BAC: +300 branches since 2019, $18bn incremental deposits) tightens local deposit supply and supports funding even as wholesale costs fall.

Risk assessment: Tail risks include a tariff-triggered inflation spike (OCI trigger: CPI >3.5% for 2 consecutive months) producing higher defaults, or a sharper-than-expected recession driving charge-offs >1.0% NPL ratio. Immediate volatility: Fed/CPI prints (days-weeks); short term (Q1–Q2 2026) credit metric inflection; long term (12–24 months) depends on loan growth vs loss provisioning and buyback cadence. Hidden dependency: BAC’s buybacks ($4.5bn/qtr target) are liquidity-positive but reduce loss-absorbing capital if credit deteriorates.

Trade implications: Tactical ideas — long BAC equity (2–3% weight) to capture dividend + buyback support but pair with 3–6 month 10% OTM puts (notional 25% of equity) to cap downside if rates fall quickly; alternatively, long JPM (1–2%) vs short BAC (1–2%) as a relative-quality trade if you expect fee resilience. If expecting rate cuts >50bp in 90 days, reduce bank beta by 30% and rotate into payments/asset managers (NDAQ) and high-quality IG bonds; use 2s/10s curve moves as a hedge trigger.

Key Decisions for Investors

• Establish a 2.5% long position in BAC (Bank of America) equity now to capture dividend yield (28¢/qtr) and $40bn buyback support; set a hard stop-loss at -10% and a take-profit tranche at +25% or if P/TB re-rates to 2.6x within 12 months.
• Hedge the BAC long by buying 3–6 month BAC puts 10% OTM equal to 25% of notional exposure (protects against rapid 50+bp Fed-driven 10yr decline over 90 days); roll or liquidate protection if 10yr stabilizes above 3.5% for 30 days.
• Initiate a relative-value pair: long JPM (1.5% weight) / short BAC (1.5%) targeting outperformance if IB and fee businesses re-rate quality; monitor quarterly IB fees and NII prints—close trade if JPM underperforms BAC by >6% or if BAC announces incremental capital return acceleration.
• Rotate 2–4% portfolio weight from regional/specialty bank exposure into NDAQ (1–2%) and high-quality IG bonds (1–2%) if CPI prints fall below 3.0% for two consecutive months or the 2s10s spread compresses by >20bp in 60 days, indicating lower systemic bank risk and favoring fee-driven franchises.