The S&P 500 rose modestly on Wednesday, with the index up by about 0.5% as of 3:30 p.m. EST. And the financial sector was one of the top performing areas of the market, with the SPDR Financial Select Sector ETF (NYSEMKT:XLF) up by nearly 2% for the day and most major bank stocks in the green.
However, Wells Fargo (NYSE:WFC) was a big standout, with shares rising by more than 5% to their highest level since June.
Let's start with why the overall banking sector is doing well. Earlier in the week, fears of the new, fast-spreading strain of the coronavirus that was found in the U.K. put pressure on bank stocks. But thanks to reports that vaccines should be effective against the new strain, those fears seem to have given way to optimism about the vaccine rollout.
The U.S. also reached a key milestone of 1 million people having been vaccinated, just over a week after Pfizer's vaccine received Emergency Use Authorization.
In the specific case of Wells Fargo, there's no company-specific news causing today's outperformance, but the bank simply has more to gain from the end of the pandemic than its big-bank rivals. As the most consumer-focused bank of the "Big Four," Wells Fargo had the most to lose from rising unemployment and doesn't have a big investment bank to help offset any losses. A return to normal life could help calm those fears, and potentially lead to large reserve releases.
We're a long way from the finish line when it comes to the COVID-19 pandemic. However, the realization that the new strain of the virus isn't likely to be a major event, combined with vaccine optimism are certainly encouraging signs for investors, and that's what we're seeing reflected in Wells Fargo's stock performance today.