(Bloomberg) - Swaps traders aren’t the only ones on Wall Street rethinking their aggressive bets on interest rate cuts. Barely a month after upgrading Bank of America Corp. to a buy, Odeon Capital analyst Dick Bove is reversing course.
“The theory was that interest rates would decline increasing the bank’s real book value. This implied a higher stock price,” Bove wrote in a note to clients, cutting his rating on Bank of America to a hold Tuesday. “I now think that the rating adjustment was a mistake.”
The downgrade comes just a few days after Bank of America reported earnings that fell short of Wall Street expectations on the heels of a hotter-than-anticipated inflation report. Even when adjusted for “one-time events,” the results were disappointing and the outlook isn’t good, Bove wrote. It’s unlikely that Bank of America’s earnings will return to 2023 levels until 2026, he added.
Bove now sees rate cuts possibly delayed until autumn in the US as the Federal Reserve keeps policy tight in its quest to reduce inflation. Derivatives traders were also reining in their bets on a March rate-cut Tuesday after cautious comments from Fed Governor Christopher Waller.
“The economy could be under stress for most of the year as labor markets weaken, loan losses rise, and corporations lose pricing power,” Bove wrote.
By Carmen Reinicke
