Bank of America (BAC) Says Stocks to Rally as Markets Price in a January Interest Rate Cut
Bank of America predicts a stock rally into 2026 as markets anticipate a January interest rate cut by the U.S. Federal Reserve. Analyst Aditya Bhave suggests market expectations for a rate cut may increase despite cautious central bank signals. Currently, futures traders see an 87% chance of a December rate cut, but only 27% for January. Bhave doubts Fed Chair Powell can convincingly counter market expectations. Bank of America's stock holds a Strong Buy rating, with an average price target implying an 8.89% upside.
Bank of America (BAC) remains bullish on stocks, saying equities are likely to rally into 2026 as markets price in a January interest rate cut from the U.S. Federal Reserve.
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Analyst Aditya Bhave says that markets could soon shift their expectations for a January rate cut despite efforts by central bank officials to sound cautious on monetary policy. In Bank of America's new U.S. Economic Weekly report, Bhave writes, "We wouldn't be surprised if markets start pricing a Jan cut more aggressively in the near term."
Currently, futures traders are placing the odds that the Fed delivers a 25 basis point rate cut at the conclusion of its Dec. 10 policy meeting at 87%. However, the odds that the U.S. central bank also lowers interest rates in January are currently at 27%. Bank of America says that expectations for January could soon change as we near the end of the year.
Convincing the Market
Despite striking a cautious tone on the U.S. economy and timing of future interest rate cuts, Bhave doubts that Federal Reserve Chair Jerome Powell can convincingly push back against market expectations for further monetary policy easing.
"Given how much data will be released before the Jan meeting, we are skeptical that Powell can be credibly hawkish at the presser," writes the analyst. Bhave adds that Powell could try to emphasize that additional cuts would require "further weakening in the labor data," or argue that a 3.5% to 3.75% policy rate "isn't restrictive in real terms." But markets are likely to stay focused on economic data.
The current Federal Funds Rate is 3.75% to 4.00%.
Is BAC Stock a Buy?
Bank of America's stock has a consensus Strong Buy rating among 18 Wall Street analysts. That rating is based on 17 Buy and one Hold recommendation issued in the last three months. The average BAC price target of $58.94 implies 8.89% upside from current levels.
