Wells Fargo has been one of the largest and most valued financial institutions in the United States. It became one of the most valued banks after the financial crisis because of its ability to recover and because it didn’t rely on risky trades or complex derivatives to turn a profit. However, the bank’s shares crashed when news of US regulators slapping a $185 million fine against the bank for opening fraudulent accounts broke. JPMorgan Chase (JPM) overtook Wells Fargo (WFC) as the largest bank by market capitalization. Most of these losses, however, have been erased in the post-election bank rally. Wells Fargo now trades close to its 52-week high.
In 2016, however, Wells Fargo stock has underperformed the financial sector as well as broad markets. The Financial Select Sector SPDR ETF (XLF) represents the financial sector, while the S&P 500 SPDR ETF (SPY) represents the S&P 500 Index. During the year, the financial sector returned 23% while SPY gained 11.2%. In comparison, Wells Fargo returned 4.2%.
Since the beginning of 2016, the financial sector has been on a roller coaster ride due to fears of a global recession and a low-interest-rate outlook. Further, banks entered 2016 expecting four rounds of rate hikes. However, things haven’t turned out in their favor. Macroeconomic uncertainty has led to delays in subsequent rate hikes. However, banks have erased their losses in the last two months on expectations of less regulation, rate hikes, and economic growth after Trump’s victory. For 2017, Fed officials are predicting three rounds of rate hikes.
Since November 8, Wells Fargo stock has risen 21%, while Bank of America (BAC), JPMorgan, and Citigroup have gained 30%, 23%, and 19%, respectively. The Financial Select Sector SPDR ETF (XLF) is up 16% during the same period.