Bank of America shares are aiming for the 2022 high! Hedge funds are frantically "snapping up" shares

The Zhitong Finance APP noted that Bank of America shares are surging, with hedge funds frantically buying its stock, highlighting Wall Street's increasing confidence that this record-breaking rally still has room to rise.

Goldman Sachs' commodity brokerage data shows that net buying by short-term funds reached a nearly ten-year high last week. This optimism, combined with rising expectations for interest rate cuts that could stimulate economic growth and loan business, as well as the Federal Reserve announcing that all major banks passed the annual stress tests, propelled the financial sector of the S&P 500 index to a historic high on Monday.

Analysts and traders tracking financial stocks are highly enthusiastic about the industry. UBS Group has identified large bank stock combinations as the preferred tool for its trading department to participate in this round of stock market gains. Wells Fargo's star analyst Mike Mayo predicts that bank stocks will continue to rise, and the Bank of America analyst team shares the same view.

Analysts at Bank of America, led by Ebrahim Poonawala, wrote that the results of the Federal Reserve's stress tests will "inject a strong dose of confidence into the entire industry." This is a rebound that many investors have long awaited since Trump's re-election last November—when the market widely anticipated a wave of deregulation and pro-business policies in the banking sector.

However, the industry faced a brief setback before Trump launched a global trade war in April. The KBW Bank Index, which tracks large U.S. banks, has rebounded more than 30% from its April low, but is still 5.4% lower than its peak in 2022.

More Positive Factors

There are more positive factors ahead, including potential regulatory reforms in the banking sector that may relax capital and leverage requirements.

"This could be a significant change—if the on-balance-sheet capital requirements are lowered, the profitability of bank loan businesses will improve, potentially encouraging them to lend more aggressively," said Gerard Cassidy, head of U.S. bank stock strategy at RBC Capital Markets. The U.S. financial sector is currently his top choice globally.

Cassidy expects new policies to be introduced in the second half of 2025, allowing banks to manage their loan portfolios more aggressively from the end of this year until 2026.

The Federal Reserve's policies are also expected to shift towards easing. While high interest rates typically benefit banks, expectations for rate cuts this year could boost the economy and potentially activate banks' trading businesses. Cassidy believes that when the fixed-rate loans issued by banks during the ultra-low interest rate era of the pandemic mature and are renewed, they will be able to reprice at more favorable rates.

"Bank asset yields are improving while funding costs are declining," Cassidy added.

Earnings Season Approaches

Of course, not all factors are positive. After nine consecutive quarters of profit growth, the financial sector is expected to show zero growth this quarter. JPMorgan Chase, Citigroup, and Wells Fargo are scheduled to announce their quarterly reports on July 15, kicking off the earnings season Nevertheless, options traders are still betting on further increases in stock prices. The call/put options ratio of the Financial Select Sector SPDR Fund (XLF), which focuses on large financial stocks, hovers near a four-month high.

"Relaxed regulations and low implied volatility in the industry are fueling strong interest in a rally for bank stocks," said Daniel Kirch, head of options at Piper Sandler