Bank of America: The Canary in the Coal Mine for the Stock Market

The uncertainty surrounding tariffs, their impact on the economy and Fed policy will undoubtedly whip stocks around for months to come.

However, major moves lower might present a buying opportunity once the uncertainty is resolved.

Bank stocks and their earnings are a great indicator of the stock market. Banks are tied to consumer spending, business investment, and market activity.

Bank of America is the largest retail bank in the United States, but it also offers commercial loans, investment and trading services, and credit cards, making it a key player in the economy as a whole.

When bank stocks rally or crash, so too do the equity markets. Also, rallies and corrections in banks are tied to economic boom or bust cycles.

Current Market: Wild Ride for Stocks Due to Massive Uncertainty

The S&P 500 is being whipsawed around due to uncertainty surrounding tariffs, trade, and the Fed’s subsequent wait-and-see monetary policy.

Chart from tradingview.com and S&P 500 analysis and drawings by Chris B Murphy.

Banks are also getting knocked around, but they are back up for now.

Check out the volatility of Bank of America (BAC) since 2023.

You would think BAC was a growth stock and not a boring bank.

• BAC was up 90% in one year from Oct. 2023 to Nov. 2024!
• Dropped 27% from February to April 2025.
• Rallied by 25% in the last two months!

Chart from tradingview.com and S&P 500 analysis and drawings by Chris B Murphy.

Takeaway: Today’s market craziness shows why we can’t time the market.

• Strategies like dollar-cost averaging, where you add money consistently, result in a better average cost price for your stock.
• Even if the market corrects and rallies back to prior levels, you still make money. Add in dividends, and you get a nice high-single-digit percentage return.

In this article, we’ll review:

• Bank of America’s Q1 2025 earnings.
• How trading revenue and loan growth played a critical role in a positive earnings report.
• Investment banking and M&A have dropped off a cliff, which says a lot about the current economic environment, particularly whether it will improve later this year.
• The Fear Index, or VIX, is bullish on equities right now.
• What BAC management is saying about the economy and consumer spending.
• What to watch out for, as stocks are likely to pull back before a late-year rally or a 2026 rally.

Q1 2025 Earnings: Bank of America (BAC)

Earnings or net income were $7.4 billion, compared to $6.7 billion last year.

EPS was 90 cents per share compared to 76 cents per share a year earlier.

• EPS has grown by 18% since last year.
• Revenue jumped 6% to $27.4 billion.
• The bank posted deposit growth of 2%.

Trading Revenue

The bank’s trading sales revenue was incredible for Q1 2025. The bank reported solid year-over-year growth for many products, primarily driven by market volatility and strong gains.

• Sales and trading revenue jumped 11% from last year to $5.7 billion.
• Overall revenue for global markets jumped 12% to $6.6 billion.
• Equities revenue increased 17% to $2.2 billion.
• Fixed-income trading increased by 8% to $3.5 billion.

From Bank of America Corporation’s press release Q1 2025.

The Fear Index: VIX

Volatility has subsided since the tariff drama in April when the VIX hit 60 (see below).

For newbies, the VIX spiking leads to volatility in the S&P 500 and bank stocks, whereby you can see the sell-off correlate with the spike in the VIX.

As long as the VIX remains in a 12-to-25 range, it should be constructive for equity positions, including those of banks like Bank of America, as they are heavily tied to economic headlines.

Chart from tradingview.com and S&P 500 analysis and drawings by Chris B Murphy.

Investment Banking

M&A activity was down, as shown by lower investment banking fees.

Investment banking fees decreased by 3% from Q1 2024, reaching $1.5 billion compared to $1.7 billion in the same period last year.

Market uncertainty, tariff policy changes, and the Federal Reserve’s hold on interest-rate policy have all contributed to a significant slowdown in mergers and acquisitions, as well as IPOs and capital expenditures.

However, the good news for BAC investors is that this is due to exogenous factors driving investment banking for the sector as a whole and not a Bank of America issue alone.

M&A should increase later in the year and into 2026 as more certainty is established. However, it’s important to note that if the tariff policy is not resolved within the next few months, we will experience increased strain on the economy, strategic business decisions, and consumer spending.

These exogenous events could lead to significantly lower acquisition volumes or deal activity, potentially resulting in layoffs within the investment banking industry by year-end.

Loan Growth

The bank posted solid loan growth of 4% over the past year.

Of course, Q1 2025 does not include the tariffs and the resulting uncertainty. However, it does provide us with some insight into how robust the economy was previously.

Bank of America Investor Relations Q1 2025 earnings.

• U.S. commercial lending and consumer banking experienced solid gains.
• Consumer banking revenue increased 3% to $10.5 billion in the last year.
• Housing (home loans) and consumer credit card revenue were mostly flat.

Bank of America Investor Relations Q1 2025 earnings.

The bank increased its provision for credit losses to just under $1.5 billion, but net charge-offs decreased from last year and represent the lowest quarter in the past year.

We should keep an eye on the provision for credit losses for any further increases, as they can indicate a potential recession or downturn due to struggling consumers.

• However, as of now, these are relatively good numbers, and there is no cause for concern at this point.

Bank of America’s View on the Economy

Listening to experts, like Bank of America’s management team, who share their insights into the economy and markets, can really help you build wealth.

Chief Financial Officer Alastair Borthwick:

“These results were sustained by an economy growing at a moderate pace and the client concerns over trade policy and recent market turmoil.

“Still, our research team at this point does not believe we will see a recession, and our clients continue to show encouraging signs. Employment is obviously healthy and consumers have proven resilient.” — Reuters.

CEO Brian Moynihan’s interview with Sara Eisen on CNBC regarding Q1 2025 results, tariffs, and the economy:

Banks are well capitalized:

“We’re reserved at a 6% implied unemployment rate, which is far where we are now and above where most people will think it will get.” —CNBC.

Trump’s tariff policies = Less business investment

“The average business owner is trying to figure it out, and that’s causing them to probably be a little slower in making decisions on hiring and capital investment until they figure out the path forward.” — CNBC.

Are recession fears pushing companies to tap credit lines, like we saw during the pandemic? Moynihan said this:

“The average draw rate of middle market credit lines was 40%, that fell to 35%, it’s right around 36%.” — CNBC.

Steady loan growth = No panic borrowing.

“We saw $70 billion in commercial lending come through in a quarter. We grew loans 4% year-over-year, think of that as $40 billion of our whole year and not $70 billion in a month.” — CNBC.

If Trump imposes tariffs on services = Major correction.

“The U.S. economy is dominated by services too…and one of the worries I have about tariff policy is when does the services get dragged into it on an international scale.” — CNBC.

Jobs from services make up 72% of the growth in the U.S. economy! — The Federal Reserve St. Louis.

If retaliatory tariffs from Europe or China hit services, we can expect a major market correction and a likely recession.

What to Watch. . .

Loan growth and consumer spending were solid, but the Q1 numbers were prior to the implementation of the tariff policy changes.

Thanks to Trump, the Fed has no idea what to do. When the Fed cuts rates or how long they wait will be a driving force in the next few months.

• In my opinion, if the smartest monetary and economic minds have thrown their hands up, admitting they have no clue what to do next, companies and consumers cannot plan.
• Expect less business investment.
• Consumers save more and spend less.
• If economic growth slows, expect credit issues.

Bank of America has a great management team and is a best-of-breed company. I think they can weather any storm of uncertainty.

However, I think there might be short-term volatile moves that could pull bank stocks down.

If you have a long-term view, buying on dips might be a good strategy, assuming no recession.

Disclosure: Please consult an investment advisor and conduct your own research before investing, as you may lose all or part of your investment. This article is for educational purposes only and does not constitute investment advice to buy BAC, nor can it guarantee the accuracy of the numbers the bank provided.

Medium readers want to hear from you!

Please comment on your thoughts on tariffs, the markets, and what you are seeing in your corner of the world. And let me know if there are any other money topics and stocks you’d like me to write about.

More to follow. Good luck. —Chris