1 Reason Wells Fargo Is Trading Down Today

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Two hours into the trading day, Wells Fargo (NYSE: WFC  ) stock is down 0.6%. Each of the Big Four banks, as well as the market's three major indices, are all hovering right around the break-even point -- with some up, some down, and some sliding back and forth. Chalk this lackadaisical, can't-make-up-my-mind attitude to jitters over the start of earnings season.

Wells as bellwether
Second-quarter earnings season has actually kicked off already, with Alcoa (NYSE: AA  ) reporting yesterday. The aluminum giant met or beat analyst expectations, but the stock is trading down today. There's just no making some people happy.

On the financials front, both Wells and JPMorgan Chase (NYSE: JPM  ) are reporting their Q2 results this Friday. Alcoa is a closely watched stock since it's traditionally the first company to report, but the market also keeps a close eye on the big banks, where the financial crisis kicked off five years or so ago.

Foolish bottom line
The country's economic recovery is coming along nicely but is perceived to be fragile, and rightly so, for the most part. There have been too many times over the past few years when, just when it seemed some momentum was gathering, poof, away it went. Now, with the threat of the removal of quantitative easing, investor jitters are higher than ever.

Hence, a powerhouse industrial giant like Alcoa meets or beats expectations, but the stock still drops. It will likely be the same for banks this season: If investors don't see world-beating numbers, they may temporarily flee the scene. And there is some reason be fearful, at least on a short-term basis, when it comes to the big banks.

Since the Federal Reserve announced a timeline for the tapering of QE, the bond markets have been in turmoil. As such, interest rates have risen, and Wells Fargo and JPMorgan are the country's two largest home lenders. Not only that, but rising bond yields mean lower bond prices, which means assets held on banks' books are going to take a hit.

Last quarter, banks like Wells and JPMorgan reported big earnings growth on little or no revenue growth. The only way to pull off that trick is to cut internal costs, but you can only cut away so much fat before you start cutting into muscle. Earnings growth without revenue growth is unsustainable. For Wells and any of the other big banks, look for revenue growth for reassurance that your investment is on the right track. 

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Related Tickers

9/23/2016 4:00 PM
WFC $45.74 Up +0.02 +0.04%
Wells Fargo CAPS Rating: ****
AA $9.76 Down -0.02 -0.20%
Alcoa CAPS Rating: ***
JPM $67.25 Down -0.14 -0.21%
JPMorgan Chase CAPS Rating: ****