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Here's Why Wells Fargo Is Rebounding on Thursday

By Matthew Frankel, CFP® - May 14, 2020 at 2:53PM

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After a terrible week, the massive commercial bank is finally having a good day.

What happened

Thursday was quite an eventful day in the stock market, with the Dow Jones Industrial Average and S&P 500 index falling by nearly 2% in the morning, only to rebound and turn positive later in the day.

Bank stocks are fueling much of this rally. The group, which has been beaten down over the past week or so, abruptly reversed course and is now one of the market's bright spots. Wells Fargo (WFC -1.50%) is having an especially good day, up by 6.4% as of 2 p.m. EDT and attempting to regain some of its losses from earlier in the week.

Exterior of Wells Fargo branch

Image source: Wells Fargo.

So what

Investors have had a difficult time figuring out how to trade bank stocks. Negative comments on the economy by Federal Reserve Chair Jerome Powell on Wednesday and a general feeling of economic pessimism caused Wells Fargo and most other bank stocks to post double-digit losses through the first three days of the week.

Wells Fargo has been especially hard-hit. Unlike the other large U.S. banks, Wells Fargo doesn't have investment banking operations (which tend to perform quite well in volatile markets) and is purely a commercial bank. So, a wave of loan defaults in a prolonged economic downturn could hurt Wells Fargo more than its peers.

Now what

The bottom line is that there is no company-specific news fueling today's move, but rather a modest reversal after several days of terrible performance in bank stocks. It's important to note that even after today's move, Wells Fargo is still down by 6% this week alone and 55% so far in 2020, so this is just a small recovery of recent losses.

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