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The Fed remains hawkish, could this buffet offer respite?

Although inflation has cooled somewhat from June highs, it has remained elevated, prompting the central bank to raise interest rates further. The US Fed again raised the benchmark interest rate by 0.75% to a target range of 3% to 3.25%. As the Fed’s hawkish stance increases stock market woes, investors may turn to Bank of America (NYSE: BAC) stock, one of Warren Buffet’s top holdings, to ride out rising interest rates.

Here is Why bet on BAC shares

As one of the largest lenders, Bank of America’s NII (net interest income) will likely be boosted by higher interest rates. In addition, its ability to grow its loan portfolio is positive. The benefit of rising rates and loan growth will help to more than offset the impact of weak capital markets activity.

Concerns are that a prolonged high interest rate environment could hurt consumer demand, leading to higher charges and delinquencies. However, the base economy is showing resilience, which should support BAC’s growth. The Federal Open Market Committee (FOMC) pointed out that job gains have remained strong while the unemployment rate is low. The committee also noted that spending and production showed modest growth.

Additionally, investors should note that Bank of America’s asset quality remains very strong. Its net charges in the second quarter remained nearly 50% below pre-pandemic levels.

What stands out is that BAC saw no change in the repositories despite the weak macro environment. At BofA’s 27th Annual CEO Finance Conference, BAC’s Chief Financial Officer said, “Deposit balances remained very stable at record highs.”

Overall, Bank of America is well positioned to deliver strong financial numbers over the coming quarters.

What is the forecast for Bank of America Stock?

Bank of America’s stock forecast on TipRanks shows that Wall Street is cautiously optimistic about its outlook. BAC stock has a moderate buy consensus rating based on 12 buys and five holds. Additionally, these analysts’ average price target of $42.66 implies upside potential of 28.7% over the next 12 months.

BAC stock also received a positive signal from hedge fund managers who bought 1.7 million shares last quarter. However, with insiders selling shares (insiders sold BAC shares worth $1.1 million), BAC is showing a neutral smart score of five out of 10.

Conclusion

The high interest rate environment will support BAC’s NII. Its strong loan growth, higher interest rates and robust asset quality will support its stock. While BAC is poised to generate solid growth, its provisions for credit losses could increase in a weak macroeconomic environment.

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