Why Wells Fargo Is Down This Morning, but Not Out

The market is reacting to some global economic concerns this morning, dragging nearly all of the financials down -- including Wells Fargo (NYSE: WFC  ) . But having lost just 1.24% in the first hour of trading, the bank is faring much better than its Big Four compatriots, which have each given up 2.3%+ so far in trading. So even though Wells is down, it's certainly not out and has some big ammunition to send it higher.  

Chinese take-out
This morning's market kerfuffle revolves around continued concerns about the gloabl economy -- and China is fanning the flame. With higher liquidity requirements pressuring the banking system, participants are not lending to each other, which may spark a liquidity crisis. The People's Bank of China, in response to this rising concern, has stated that banks will have to sort the matter out themselves, which is the crux of investor concern with the potential liquidity freeze.

Since China's economic growth has been one of the biggest economic stories for years, driving demand for imports and development, a further slowdown would do serious damage to the global recovery.

Banks take it on the chin
Of course, financial firms that have big exposures to the Chinese economy are getting hit pretty hard this morning. With expansions in China providing a big chunk of revenue, American International Group (NYSE: AIG  ) and Citigroup (NYSE: C  ) are two of the biggest losers. Bank of America (NYSE: BAC  ) and JPMorgan Chase  (NYSE: JPM  ) both have exposure to the region, though to a much smaller extent, so they are both down over 2.5% as of writing.

Wells Fargo, on the other hand, has little international exposure other than traditional lending, so its investors aren't as concerned with the regional issues so much as the global implications. China's demand for American goods and services may fall if there is further development of a liquidity crisis, leaving the small gains in exports and manufacturing that have helped our economy move forward in its recovery in peril. That could have a ripple effect throughout every segment of the U.S. economy, slowing or stopping the steady improvements we've been seeing.

Fear not, Wells investors
This week may have some good news for Wells investors, however, that could turn the bank's trading odds around. Bank investors should know that this week is a big one for housing data -- something Wells investors should be keen to hear. With the bank controlling over 25% of the mortgage originations in 2012, good news on the housing front is good news for the bank.

And as for the Chinese economy, the current levels of liquidity are fine, and the market reaction is really focused on a "what if." So if you focus on the strength of your investments as businesses and not the headlines, you'll fare better than your compatriots -- just like Wells this morning.

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.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2505655, ~/Articles/ArticleHandler.aspx, 9/16/2014 7:36:01 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement