Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / How Bank of America Is Beating JPMorgan This Quarter
Transcript
- Lucas: Bank of America is up three and a half percent over the past five trading days. JPMorgan, by comparison, managed one point seven percent. That gap might not sound massive, but in a week where the S&P 500 barely budged—up half a percent to 7,446—it's worth asking what's driving the divergence. Luna: And the Dow hit 50,286, up one and a half percent. So financials are leading, but not uniformly. Lucas: Exactly. The easy narrative is that regional banks are having a moment—the Russell 2000 is up one point eight percent this week—but Bank of America is not a regional bank. It's a global systemically important bank with two and a half trillion dollars in assets. Yet its five-day return looks more like a regional bank than like JPMorgan. Luna: So what's the specific catalyst? Earnings season is largely behind us. Is this a sector rotation trade? Lucas: Partly. But I think it comes down to two things: deposit mix and trading revenue composition. Bank of America has a much larger consumer deposit base relative to wholesale funding. In a higher for longer rate environment—which we're still in as of late May 2026—that deposit franchise becomes more valuable because the bank doesn't have to pay up as much for funding. Luna: And JPMorgan, on the other hand, has a bigger investment bank. More reliance on capital markets fees and trading. Lucas: Right. So when you see headlines about prediction markets and regulatory battles, or the SpaceX and OpenAI valuation stories—those are great for JPMorgan's M&A advisory and underwriting pipelines. But the actual earnings impact is lumpy and takes time. Bank of America's earnings are more predictable quarter to quarter because of the consumer deposit base. Luna: And the market is rewarding that predictability right now. Even though both banks are solid. Lucas: Precisely. Let me give you a concrete number. Bank of America's net interest income in the most recent quarter was roughly fourteen point five billion dollars. That's up about four percent year-over-year. JPMorgan's net interest income was around twenty-three billion, but it grew only two percent. The divergence in NII growth is a big part of the stock price gap this week. Luna: So the market is saying: Bank of America is executing better on the core banking spread. But is there a risk that the regional bank rally pulls BAC up too far? I mean, the KBW Bank Index is up what, maybe three percent this week? Lucas: The KBW Bank Index is up about two and a half percent. So BAC is outperforming the sector, not just JPM. That could be a momentum effect—investors piling into the name that's showing the clearest improvement. But I think there's a fundamental story here. Bank of America's efficiency ratio has been trending down, meaning it's spending less to generate each dollar of revenue. That's exactly what you want in a concentrated portfolio. Luna: If we're building a concentrated portfolio of, say, ten stocks, would Bank of America make the cut over JPMorgan right now? Lucas: That's the question. And my answer would be: it depends on your time horizon. Over the next six months, I'd lean toward Bank of America because the deposit story is still playing out. Over the next three years, I'd take JPMorgan because Jamie Dimon's team has proven they can navigate any cycle, and the investment banking recovery will eventually hit. But in a concentrated portfolio, you don't have to choose—you can own both, or neither. Luna: Right. But if you own both, you're doubling down on one sector. That's okay if that's your conviction, but it's a risk. Lucas: Exactly. And that's the discipline of concentrated investing. You can't just buy all the good stories. You have to rank them. So let me put a finer point on it. Bank of America trades at about twelve times forward earnings. JPMorgan trades at about thirteen times. Both are reasonable, but BAC's price to earnings ratio is slightly lower despite faster NII growth. That's an interesting mispricing. Luna: So the market is pricing in more skepticism about BAC's sustainability. Maybe because of its larger consumer exposure—if the economy slows, consumer credit could deteriorate faster than at JPMorgan. Lucas: That's the bear case. And it's valid. Bank of America has more credit card and auto loan exposure relative to its balance sheet. JPMorgan is more diversified across geographies and business lines. So if you're worried about a consumer slowdown in the second half of 2026, JPMorgan is the safer bet. But if you think the consumer holds up—and the data so far this quarter suggests they are—then BAC is the better value. Luna: I want to bring in another data point. Citigroup is up about two percent this week, Wells Fargo up about two and a half. So both are underperforming BAC. What do they tell us? Lucas: They tell me the market is not just buying all banks. It's being selective. Citi has its own transformation story under Jane Fraser, but the stock has been a laggard for years. Wells Fargo is still dealing with the asset cap fallout. So the market is rewarding banks that have clean stories and clear earnings momentum. Bank of America fits that bill better than its peers right now. Luna: Let's talk about the broader market context. The S&P at 7,446 is near all-time highs. The Dow crossed 50,000 for the first time recently. We're in a mature bull market. Does that change how you think about bank stocks? Lucas: It does. In a mature bull market, you want companies that can grow earnings even if the economy slows. Banks are cyclical—they benefit from economic growth. But the big money-center banks have become less cyclical over the past decade because of fee income and wealth management. Bank of America's wealth management division, for example, has been growing assets under management at a compound annual growth rate of about six percent. That's a steady stream of fees regardless of the economy. Luna: So the argument for BAC is not just deposit beta, but also the stability of its fee businesses. Lucas: Exactly. And that's why I think the stock can continue to re-rate higher. If the market starts to see Bank of America as more of a compounder than a pure cyclical, the price to earnings multiple could expand to fifteen or sixteen times. That would add another twenty percent to the stock price even if earnings stay flat. Luna: That's a compelling thesis. But let me play devil's advocate. What if the Federal Reserve cuts rates later this year? Bank net interest margins typically compress when rates fall. Wouldn't that hurt BAC more than JPM, given its larger deposit base? Lucas: It's a good question. Historically, bank stocks do tend to underperform in rate-cutting cycles. But the market has already priced in a couple of cuts by year-end. The two-year Treasury yield is around three point eight percent, down from four percent a month ago. So some of that NIM compression is already in the stock price. And if cuts happen because inflation is falling, that's actually good for consumer credit quality. So it cuts both ways. Luna: So you're saying the net effect could be neutral or even positive for BAC. Lucas: I think so, especially if the cuts are gradual and the economy avoids a recession. Bank of America's management has been very good at managing expenses and credit risk. The CEO, Brian Moynihan, has been at the helm since 2010. He's seen multiple cycles. I trust the execution. Luna: Speaking of trust, I want to bring in something from the news. There's a headline about Perpetua Resources securing a two point nine billion dollar US loan for an Idaho mining project. That's a very small company, but it shows the government is willing to back domestic critical mineral supply chains. Does that have any read-through for the big banks? Lucas: Indirectly, yes. If the government is financing large infrastructure and mining projects, that creates lending opportunities for banks. Both JPMorgan and Bank of America have large project finance divisions. But for a stock picker, you're not buying BAC because of one loan to Perpetua. You're buying it because of the overall lending environment, which is improving. Luna: So the macro tailwind is supportive. But let's get back to the concentrated portfolio. If you had to choose one bank for a ten-stock portfolio, what would it be? Lucas: For the next twelve months, I'd choose Bank of America. The valuation is slightly cheaper, the earnings momentum is better, and the consumer deposit story is underappreciated. For a three-to-five-year horizon, I'd choose JPMorgan because of its superior diversification and management depth. But if you're building a concentrated portfolio, you might not want any bank at all. You might prefer to get your financial exposure through a company like Berkshire Hathaway, which owns a lot of banks and insurance companies. Luna: And Berkshire is down zero point six percent this week. So it's not participating in the bank rally. That could be a sign that the market is rewarding pure-play banks over conglomerates right now. Lucas: That's a fair observation. Berkshire is a different beast—it's an insurance company that also owns BNSF, See's Candies, and a massive equity portfolio. The bank rally is not necessarily going to move the needle for Berkshire. So if you want bank exposure, buy a bank. Luna: And that's the kind of clarity you need in a concentrated portfolio. You don't buy a little bit of everything; you buy the best expression of your thesis. Lucas: If today's episode was useful to you and you want to keep it ad-free, buy me a coffee dot com slash fexingo helps. That's the simplest way to support the show and keep these conversations going. Luna: Yeah, it's a small thing that makes a big difference for us. Thanks to everyone who already chips in. Lucas: So to wrap up this angle: Bank of America is outperforming this week for specific, fundamental reasons—deposit mix, NII growth, and clean execution. JPMorgan is the better long-term compounder, but right now the market is rewarding BAC's relative value. If you're stock-picking in financials, that's the trade-off you weigh. Luna: And the broader takeaway is that even within a sector, dispersion creates opportunity. You don't have to buy the whole category. Lucas: Exactly. That's the whole point of stock picking. Next week, I want to look at the energy sector—ExxonMobil is down one point seven percent this week, Chevron is up zero point nine. There's a divergence there worth exploring. Luna: I'll bring the data. See you then. Lucas: Thanks for listening.