Bank of America revealed better-than-expected fourth quarter results on rising interest rates and lower taxes, lifting bank stocks and financial sector-related ETFs.
On Wednesday, the Invesco KBW Bank ETF (NASDAQ: KBWB) was among the best performing financial sector-related ETFs, rising 2.8% and breaking above its short-term resistance at the 50-day simple moving average, while the broader Financial Select Sector SPDR (NYSEArca: XLF) gained 2.6% and rose above its 50-day trend line as well.
Bank of America announced better-than-expected record profits of $7.3 billion and revenue of $22.7 billion, CNBC reports.
In the same quarter a year ago, the bank’s profits were dragged down by a large one-time charge related to the corporate tax reforms passed in late 2017.
Bank of America Shares Surge
BAC shares surged 7.7% on the news. BAC makes up 8.2% of KBWB’s underlying holdings and 8.3% of XLF.
“Operating leverage based on disciplined expense management while investing in our future, solid asset quality, and loan and deposit growth drove this quarter’s results,” CEO Brian Moynihan said in a statement. “Through the trillions of dollars of consumer transactions we process and from the steady confidence and activity of our small business and commercial clients, we see a healthy consumer and business climate driving a solid economy.”
Profits in Bank of America’s consumer banking business jumped by 52% year-over-year, loans rose by about 1.9% and credit and debit card spending increased by 6%.
The Federal Reserve’s interest rate hikes helped bolster the bank industry’s bottom line. While higher rates usually means higher interest rates on deposits, the Fed’s slow pace of interest rate hikes allowed big banks to charge borrowers more without having to significantly raise payouts to depositors.
Bank of America’s positive report follows the release of J.P. Morgan Chase’s (NYSE: JPM) results on Tuesday. J.P. Morgan revealed weaker-than-expected earnings, but the company stocks still managed to eke out a slight gain.
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