Why Wells Fargo Is Bouncing Back Today

Expect the unexpected. That's the best advice I can give investors this Tuesday morning. One and a half hours into trading, Wells Fargo (NYSE: WFC  ) is up a solid if not stellar 0.75%. Its Big Four peers are up even more. Has the global freak-out over last week's move by the Fed run its course, or is this merely a lull in the action?

This was no move
It's not even accurate to label what the Fed did "a move." Technically, there was no move. The third round of quantitative easing will continue as it has been since its inception last September. There was an announcement that the Fed might taper its $85 billion in monthly bond purchases beginning later this year if the economic data keeps trending in the right direction.

But that was enough to send global markets into a tizzy, and not just equity markets: Bond and commodities markets reacted sharply to the Fed's announcement, too. And just for good measure, a credit crunch in the world's other economic superpower, China, spurred investor fears of slower growth there or even outright financial instability, a la our own financial crisis.

Foolish bottom line
So, what's sending Wells Fargo, its peers, and even the broader markets so seemingly confidently into the green today?

First, the Chinese government has made assurances it will backstop any cash-starved banks. A statement from China's central bank, The People's Bank of China, read: "If banks have temporary shortages in their planned funding, the central bank will give them liquidity support." 

Second, there was some good news from the U.S. housing market. April's Case-Shiller index of home prices increased by 12.1% year over year. And being the country's largest provider of home mortgages, any news of continued recovery in the housing market is good news for Wells.

Third, it's just possible the Fed-generated freak-out is wearing itself out a bit, and we're seeing a general bounce-back. This may be a correction to the market's obvious overreaction last week, and if so, it's a welcome one. But I wouldn't count on the action being over just yet. I think this is a lull, and there's more volatility to come.

Still, investors should be happy to make back, at least temporarily, what they've lost over the last few days. And for Wells investors, that's not as much as the other big banks, thanks to its well-deserved reputation among the Big Four as banking's steady-Eddie. If you're invested in Wells, you already know what a solid, long-term investment it is, which might be all the more reason to buy more even more of Warren Buffet's favorite banking stock while it's on sale.  

Learn more about Wells Fargo: the only big bank built to last
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8/29/2014 4:00 PM
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Wells Fargo CAPS Rating: ****

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