Bank of America (BAC) is on top of the mountain. The bank just reported 4th quarter earnings that beat expectations. The U.S. economy and the stock market are in great shape, the DJIA is hopping from record to record. Bank of America's shares are surging, and the Fed is expected to lift interest rates three times in 2018. This context has made investors way too cheerful right now, and they discount the very real possibility of a 10% or more drop in the stock market. It's time to be fearful when others are greedy.
Bank of America's shares have had a great run in 2017, surging ~40 percent as the economic picture gradually brightened up. The Fed raised interest rates three times in 2017 (in March, June, and December), each time hiking by 25 basis points. Higher interest rates translate into higher net interest income for Bank of America, a key reason investors bought into the bank's strength throughout 2017.
