The past several months have been incredibly hard on just about every stock in the market; that is, until October. In the month of October, we saw an incredible rebound in US stocks. However, it seems as though the rebound has reached the end for Bank of America. Unfortunately, the stock has started to reverse, and it seems as though the downtrends are going to continue. Today, we'll talk about why Bank of America isn't doing so well in the market at the moment, what we can expect to see moving forward and how binary options traders can take advantage of the trends. So, let's get right to it…
Why Bank of America Isn't Keeping Up With The Rest Of US Stocks
While most of the market is still doing relatively well, Bank of America is starting to run into more turbulence. The reason for this is actually pretty simple to explain. When it comes to big banks like Bank of America, one of the primary sources of revenue is interest on loans. Essentially, the banks borrow money from the Federal Reserve, paying the Federal Funds interest rate on that money. Then, banks turn around and loan that money to consumers with a premium on the interest rate charged by the Federal Reserve. That premium equates to profits for the banks. This means that when the Federal Reserve's interest rate is low, the premium banks can charge on loans is low and when the Federal Reserve's rate is high, bank premiums are high. Therefore, banks make more money under high interest rate conditions.
Many investors expected for the Federal Reserve to increase its interest rate by now. After all, it's been sitting at record lows for more than six years at this point and the Fed said that they plan to increase their rate by the end of the year. So, leading up to the FOMC meeting, at which rates would be discussed, Bank of America's stock did relatively well. However, at the conclusion of the meeting, we found out that the Fed wouldn't be raising rates in October. This put pressure on Bank of America and other big banking stocks; ultimately leading to the downtrends that these stocks have been experiencing.
What We're Likely To See Moving Forward
Bank of America is likely to either trade flat or decline overall for some time. At least, that is the case until the Federal Reserve finally does decide to increase its rate. However, I don't believe that's coming any time soon either. The reality is that the Fed can't increase its interest rate until the United States economy is strong enough to take the blow. Unfortunately, that's not currently the case and won't likely be the case for quite some time. In the United States, we're seeing pressure on exports, job growth, new home sales, consumer spending and more. This tied in with the global economic downturn means that an interest rate hike from the Fed would most likely cause widespread economic hardship. Therefore, it simply doesn't make sense that the Federal Reserve would raise its rate any time soon. As a result, Bank of America is likely to continue struggling in the market.
How Binary Options Traders Can Take Advantage Of The Trends
Knowing that Bank of America is likely to continue declining, binary options traders have quite the opportunity here. To turn the trends into profits, traders should watch Bank of America for put option opportunities. This will give them the opportunity to ride the trends down to in-the-money endings. Keep an eye on the latest financial news.
What Do You Think?
Where do you think Bank of America is headed and why? Let us know in the comments below!
[Image Courtesy of Fox News]