Trader Talk

What's Driving the Bank Stock Rally


Bank rally: less than meets the eye. Another day, another bank rally — what gives? Bank of America up 6 of the last 7 trading sessions?

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There is no dramatic news since January 1 to move these stocks. It's simple: no one owned them at the end of 2011 — the Street is underinvested, and they're playing catchup now.

Yes, we've seen some modest improvements in the economy. Yes, valuations are cheap (0.6 times book for BAC!). Yes, there is hope we are at a bottom.

There's one factoid that may be helping: renewed talk about getting Fannie and Freddie to sell their REO (real-estate owned) books to private investors. A modest positive, but that was around last year as well.

And Bank of America? Why the outperformance? This was the most unloved bank in the most unloved sector. It dramatically underperformed all other large banks through 2011.

Now when other banks are rallying, it is playing catchup: up 23 percent year to date, with the Bank Index up only 10 percent.

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