Please ensure Javascript is enabled for purposes of website accessibility

Here's Why Wells Fargo, JPMorgan Chase, and Other Big Banks Are Soaring on Wednesday

By Matthew Frankel, CFP® – Jun 3, 2020 at 2:04PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The financial sector is a standout today, and the big banks are leading the way higher.

What happened

The stock market continued its recent rally on Wednesday, with the Dow Jones Industrial Average and S&P 500 index up by 1.2% and 1%, respectively, at 10:45 a.m. EDT.

One of the day's standouts is the financial sector. The Financial Select Sector ETF (XLF -1.03%) was higher by 3.4% on the day, and the big banks are leading the charge. Wells Fargo (WFC -0.79%), JPMorgan Chase (JPM -1.39%), and Citigroup (C -2.15%) were all up by approximately 5%.

Man in suit with money falling around him.

Image source: Getty Images.

So what

In a nutshell, investors are becoming more and more optimistic about the reopening of the economy. Data shows that consumers might be more willing to spend than many had originally thought, and that economic activity is rebounding fairly quickly.

On Wednesday, we learned that private payrolls fell by 2.76 million in May, but this was far less than the 8.75 million contraction that was expected. And, the ISM non-manufacturing index, which shows how well the service sector is performing, rebounded more sharply than expected from the 11-year low reported in April.  

On the payments front, Visa (V -0.81%) recently reported that U.S. payment volume was only down by 5% year over year in May, which is a dramatic improvement from the 18% decline seen in April.  

And finally, the COVID-19 case numbers continue to move in the right direction. As state economies have all started to reopen (with some in the advanced stages of reopening), there has been fear of a spike in case numbers, which simply hasn't happened. In fact, according to the latest data from Johns Hopkins, the five-day moving average of new case numbers in the U.S. continues to trend lower.  

As would be expected when reopening data has been positive, the stocks that have been hit the hardest by the pandemic are seeing the largest upward moves. And the financial sector has definitely not been one of the market's bright spots for most of 2020. After the recent market rally, the S&P 500 is only down by about 4% from where it started the year, but the financial sector is down by 20%.

Bank stocks that have large consumer lending operations, especially when it comes to riskier loans like credit cards and commercial loans to the oil and gas industry, have done especially poorly. Even after today's move, JPMorgan Chase and Citigroup are still lower by 25% and 33% for the year, respectively. Wells Fargo has been the laggard of the big banks, down 46% year-to-date. Unlike the others discussed here, Wells doesn't have a major investment banking business (which tends to do quite well in turbulent markets).

Now what

Most big banks (including the three discussed here) have set aside billions in anticipation of elevated default rates and loan losses as a result of the economic impacts of the COVID-19 pandemic. As the economic reopening news continues to be strong, it gets increasingly likely that banks will avoid massive loan losses and will see consumer demand pick up sooner rather than later.

Matthew Frankel, CFP has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Visa. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Citigroup Inc. Stock Quote
Citigroup Inc.
C
$43.31 (-2.15%) $0.95
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
JPM
$107.62 (-1.39%) $-1.52
Wells Fargo & Company Stock Quote
Wells Fargo & Company
WFC
$40.09 (-0.79%) $0.32
The Select Sector SPDR Trust - The Financial Select Sector SPDR Fund Stock Quote
The Select Sector SPDR Trust - The Financial Select Sector SPDR Fund
XLF
$30.73 (-1.03%) $0.32
Visa Inc. Stock Quote
Visa Inc.
V
$182.47 (-0.81%) $-1.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
329%
 
S&P 500 Returns
106%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.