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Why Bank of America Corp (BAC) Stock Is Surging

Shares of Bank of America Corp (NYSE:BAC) are surging today following a drop in mortgage rates and a better-than-expected June jobs report. With two hours left in the trading session, the nation’s second largest bank by assets is up by 1.48%, narrowly underperforming the broader sector’s KBW Bank Index , which is higher by 1.94%.

Bank of America Corp (NYSE:BAC)

The recent talk in the market has pivoted around one thing: the Federal Reserve. At the end of May, Fed chairman Ben Bernanke intimated that the central bank could soon begin to reduce its support for the economy, which currently consists of $85 billion in bond purchases a month. The consequences would be higher long-term interest rates, lower bond prices, and presumably depressed stock prices as well, given that investors seeking yield would flood back into fixed-income securities.

In fact, we’ve already seen many of these come to fruition. Interest rates on the 10-year Treasury have climbed by more than 100 basis points since the end of April. Mortgage rates shot up from less than 3.5% to roughly 4.3% today. And the S&P 500 has fallen by nearly 3% since Bernanke’s first announcement.

Beyond this, the fear of tapering has ignited significant volatility in stocks. The Dow moved an average of 136 points last month compared to an average of less than 70 points a day for the first five months of the year. And stocks either increased or decreased by triple digits on 80% of the trading days in June; the same figure for May was 36% and April 32%.

Today’s news and the performance of financial stocks in particular, in turn, is just a continuation of this. In the first case, the Labor Department announced that employers added 195,000 jobs last month. While this wasn’t enough to move the needle on the unemployment rate, it nevertheless exceeded the consensus forecast, which called for a figure of 155,000. The news adds credibility to the Fed’s decision to begin tapering sooner rather than later.

In addition, earlier this week, on Wednesday, Freddie Mac released its weekly estimate of mortgage rates. The prior week saw the rate on a 30-year fixed rate mortgage climb by the largest magnitude in history to 4.46%. This figure now appears to be settling back down, coming in at 4.29%. This is widely perceived of as good news for banks because it could act as a stimulant for mortgage underwriting. It’s for these reasons, in turn, that many of the nation’s largest banks are trading higher today.

The article Here’s Why Bank of America Stock Is Surging originally appeared on and is written by John Maxfield.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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