Why Wells Fargo Is Bucking Today's Downtrend

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On a day when most bank stocks are down, investors in Wells Fargo (NYSE: WFC  ) will be happy to hear that the California-based lender is bucking the trend -- at least for the time being. Roughly halfway through the trading session, shares of the nation's fourth largest bank by assets are up by $0.24, or 0.59%. By comparison, the KBW Bank Index (DJINDICES: ^BKX  ) is lower by 0.13%.

The impetus for today's climb is admittedly hard to pin down, as much of the news coming out of the sector over the last few days would seem to weigh on bank stocks in general and Wells Fargo more particularly. Yesterday, for example, the Mortgage Banks Association released the results of its latest survey of weekly mortgage applications. According to its estimate, after adjusting for seasonality, mortgage applications decreased last week by 11.5% compared to the week prior. Excluding the seasonal adjustment, they fell by 20% over the same time period.

What's driving mortgage application volumes down? The answer is higher mortgage rates. According to Freddie Mac's Primary Mortgage Market Survey, the average rate on a conventional 30-year fixed-rate mortgage shot up this week to 3.91%. That's the highest rate in over a year, and nearly 60 basis points up from the trough at the end of 2012. This uptick is reducing the incentive of current mortgagees to refinance, as the MBA also reported yesterday that the refinance share of mortgage activity decreased to 68% of total applications down from 71% the previous week.

To get back to Wells Fargo, in turn, anything that happens in the mortgage market is of primary concern to the bank because it underwrites roughly a third of all home loans in the United States. But the flip side of the coin -- and this may go a long way toward explaining why Wells Fargo is bucking today's downtrend -- is that any negative impact of higher interest rates on mortgage applications volumes will be at least partially offset by a higher yield on earning assets.

Wells Fargo's dedication to solid, conservative banking helped it vastly outperform its peers during the financial meltdown. Today, Wells is the same great bank as ever, but with its stock trading at a premium to the rest of the industry, is there still room to buy, or is it time to cash in your gains? To help figure out whether Wells Fargo is a buy today, I invite you to download our premium research report from one of The Motley Fool's top banking analysts. Click here now for instant access to this in-depth take on Wells Fargo.

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  • Report this Comment On June 06, 2013, at 3:52 PM, Bev549 wrote:

    I've heard negative stories about Wells Fargo, but I have to admit, when I was laid off in 2009, Wells Fargo worked with me to get through this crisis. The first thing I did when I was laid off was to contact them and let them know that I had been laid off. I cashed out my meager 401k to help pay the mortgage and bills. When that started to run low I contacted Wells Fargo again and they lowered my monthly payment to pay just the interest. The principal was added to the mortgage balance. They did this for 6 months. Then they had me fill out an application for the "Home Affordable' program. To qualify I had to make 3 more months of payments at a reduced rate. Then 3 more months at an increased rate. By the grace of God, I was rehired after 15 months but at a 25% pay cut. Since I had already qualified for the Home Affordable program, and I was now re-employed, albeit at a lower income, they could now refinance my mortgage. I got a lower rate and a lower mortgage payment. I'm pretty happy with Wells Fargo.

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9/26/2016 4:00 PM
WFC $44.88 Down -0.86 -1.88%
Wells Fargo CAPS Rating: ****