Wells Fargo underperformed peers in 2016
Wells Fargo 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 stock crashed when news of US regulators slapping a $185 million fine against the bank for opening fraudulent accounts broke out. 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, 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. The financial sector has returned 23%, while SPY has gained 11%. In comparison, Wells Fargo has returned 4.2% in 2016 and 0.4% year-to-date in 2017.
Performance of peers
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 didn’t turn out in their favor. Macroeconomic uncertainty has led to delays in subsequent rate hikes. However, banks have erased their losses in the last few months on expectations of less regulation, rate hikes, and economic growth after Trump’s victory.
In 2017 so far, Wells Fargo stock has gained 0.4%, while Bank of America (BAC), JPMorgan, and Citigroup have gained 4%, 0.5%, and 0.3%, respectively.