Bank of America's 23.1% YTD Rally: What's Driving the Momentum—And What Comes Next?

Bank of America BAC has delivered impressive returns this year, climbing 23.1% year-to-date and building on its 30.5% surge in 2024. Yet questions persist: does this strong run mean the stock has already peaked, or are there deeper reasons to maintain exposure?

To answer this, we need to examine both the company’s competitive positioning and the macroeconomic backdrop supporting its trajectory. While BAC trails JPMorgan JPM (up 31.9% YTD) and Citigroup C (up 53.2% YTD), it has consistently outpaced the broader S&P 500 Index—suggesting the gains are rooted in fundamental strength rather than sector rotation alone.

Valuation Still Offers Room for Entry

Before diving into growth catalysts, the valuation picture deserves attention. Bank of America currently trades at a 12-month trailing price-to-tangible book (P/TB) ratio of 1.98X, below the industry average of 3.07X. This discount is particularly notable when compared to JPMorgan’s 3.17X valuation—signaling that investors haven’t fully priced in BAC’s recovery narrative.

Meanwhile, consensus earnings estimates have been revised upward in recent weeks. Analysts now project $3.80 in earnings per share for 2025 and $4.35 for 2026, reflecting 15.9% and 14.5% growth respectively. At current prices, the stock trades at a meaningful discount to its peers, creating a window for value-conscious investors.

Three Structural Tailwinds Supporting Growth

1. Interest Rate Environment and Net Interest Income Trajectory

The Federal Reserve has already cut rates twice this year, with another 25 basis point reduction anticipated. This path contrasts sharply with 2024’s more aggressive 100-bp cut cycle. For a rate-sensitive bank like BAC, lower rates typically pressure net interest income (NII)—yet management’s guidance suggests resilience.

Bank of America projects 5-7% year-over-year NII growth in 2026, supported by fixed-rate asset repricing and declining funding costs. As lending activity accelerates in response to easier financial conditions, combined with easing regulatory capital requirements, the bank should see solid loan growth. Management targets 5% compound annual growth rate for loans and 4% for deposits over the medium term.

Comparatively, JPMorgan anticipates 2025 NII of $95.8 billion (up >3% YoY), while Citigroup expects 5.5% NII growth in 2025. All three have demonstrated capacity to adapt to a lower-rate environment without dramatic margin compression.

2. Branch Network Expansion as a Competitive Moat

In an era dominated by digital banking, Bank of America is making a counterintuitive but strategic bet on physical presence. The bank operates 3,650 financial centers domestically and has opened 300 new locations since 2019, while renovating over 100 others. More notably, it has entered 18 new geographic markets since 2014 and plans six additional market entries through 2028.

This expansion has yielded tangible results: 170 incremental financial centers in new markets, generating $18 billion in deposits. The rationale is clear—clients increasingly value local, trusted advisors and relationship depth, even as they conduct routine transactions digitally. This hybrid approach drives core deposit stability, cross-sell efficiency and account acquisition in growth regions.

Coupled with aggressive technology investments exceeding $4 billion annually (focused on AI, automation and cybersecurity), BAC is building a differentiated infrastructure that competitors will struggle to replicate quickly.

3. Capital Deployment and Shareholder Returns

Bank of America cleared this year’s Federal Reserve stress test and increased its dividend by 8% to 28 cents per share—extending a five-year streak of consecutive annual hikes (8.83% compound annual growth). Additionally, management authorized a $40 billion share repurchase program, with $4.5 billion allocated quarterly in the near term.

This capital commitment reflects management confidence in the earnings trajectory while directly supporting total shareholder return.

Medium-Term Earnings Power and Strategic Focus

Management has articulated a medium-term target of approximately 12% annual earnings growth, anchored on a 55-59% efficiency ratio and diversified revenue streams. The investment banking division deserves particular attention here. After struggling through 2022-2023, M&A activity has rebounded in 2025 despite early-year tariff-related volatility. The bank targets mid-single-digit compound annual growth in IB fees and 50-100 basis points of market share gains, building on 136 basis points of share gains achieved through the third quarter of 2025.

Wealth management, middle-market banking and international expansion represent additional growth vectors, while alternative investment products (including private credit) broaden the revenue base.

Asset Quality: The Notable Headwind

One area requiring monitoring is credit quality. Bank of America’s provisions for credit losses have been trending upward—surging 115.4% in 2022, 72.8% in 2023 and 32.5% in 2024, with further increases in the first nine months of 2025. Net charge-offs similarly accelerated 74.9% in 2023 and 58.8% in 2024.

The persistent elevation of interest rates has strained borrower balance sheets, while emerging inflation pressures (partly tariff-related) threaten to worsen credit trajectories. Management remains vigilant on this front, though improvement hinges on macroeconomic stabilization and eventual rate declines.

The Verdict: Why BAC Remains Attractive

Even after a substantial YTD rally, Bank of America stock warrants consideration for growth-oriented portfolios. The combination of valuation discount to peers, structurally improving NII, diversified revenue expansion and aggressive capital returns creates a compelling risk-reward setup.

Yes, credit headwinds and short-term rate volatility present near-term noise. But the medium-term foundation—anchored on disciplined cost management, technology leverage and geographic expansion—supports management’s 12% earnings growth ambition.

With the stock trading below industry valuation multiples and earnings poised for double-digit expansion, Bank of America carries a Zacks Rank #2 (Buy) rating. For investors seeking exposure to large-cap financials with defensive characteristics and upside surprise potential, the risk-reward skews favorably at current levels.

Note: This analysis reflects consensus expectations as of the latest estimate revision period. Actual results will depend on macroeconomic conditions, credit quality evolution and regulatory developments.