On a rough day for the market in general, shares of Wells Fargo (NYSE:WFC) fell nearly 5% today for no obvious reason. The decline was more than the drop in the broader sector as the KBW Nasdaq Bank Index, which tracks large bank stocks, only fell about 3% today.
The bank sector came under pressure today as the yield on the 10-year U.S. Treasury bill fell ever so slightly, while the yield on the two-year U.S. Treasury bill rose slightly.
Most banks make money by borrowing money short term and lending it out on a longer-term basis, so if short-term yields rise and long-term yields fall, then bank margins are hurt. In general, recent news regarding inflation and rate hikes tends to benefit banks, especially a bank like Wells Fargo, which is more sensitive to rising rates than are many other banks. However, if investors think growth is going to slow next year, that could hurt banks, which are closely linked to the overall economy.
The only other news I saw today regarding Wells Fargo is that the owner of a hotel, which Wells Fargo had loaned money to along with other lenders, is filing a countersuit and attempting to prevent its lenders, like Wells Fargo, from collecting interest on late debt payments.
Ultimately, it has not been uncommon for Wells Fargo to move with a little more volatility than its peers. That could be due to regulatory issues stemming from the phony-accounts scandal, which ultimately led the Federal Reserve to impose an asset cap that makes it hard for Wells Fargo to grow its balance sheet.
Long term, I believe this asset cap will eventually be removed, and the stock has plenty of upside ahead.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.