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Thursday Revisited...


Financial stocks bounced higher Thursday, sparked by a recovery in Wells Fargo & Co.’s stock off an 11-year low, as concerns about potential forced dividend cuts were put on hold despite a gloomy economic outlook. The SPDR Financial Select Sector exchange-traded fund surged 2.6%, with 62 of 66 equity components trading higher, to snap a three-day losing streak in which the ETF had lost 7.3%. The ETF was down as much as 2.8% at its intraday low of $20.09 Thursday which was hit roughly a half-hour after the open.


The intraday rally was highlighted by Wells Fargo shares, which ran up 6.8% on volume of 87.6 million shares, which was nearly double the full-day average. The stock had plunged 24.9% during a 10-day stretch in which it fell nine times, to close Wednesday at the lowest price since June 2009. It fell another 2.3% earlier Thursday to an intraday low of $22.02 before reversing course.

The stock, and the rest of the financial sector, have been under pressure this week after Federal Reserve Chairman Jerome Powell gave a somewhat downbeat assessment of the prospects of a post-COVID-19 economic recovery, and as Fed Vice Chairman Randal Quarles was questioned by Congress as to whether banks should be required to cut dividends.


Hovde Group analyst Joseph Fenech said he believed Quarles’ testimony this week suggested the prospects of forced dividend cuts “isn’t quite so far-fetched” and could have further support than previously presumed.


European banks have cut dividends in response to the COVID-19 crisis. While U.S. banks have suspended stock repurchases, they have remained committed to paying dividends.

Analyst Vivek Juneja at J.P. Morgan indicated that concerns about a dividend cut has hit Wells Fargo particularly hard, “because it has the highest payout ratio” among the banks he covers.


Based on current stock prices, Wells Fargo’s current annual dividend rate of $2.08 a share implies a dividend yield of 8.48%. That compares with the yield for the financial ETF of 2.83% and the implied yield for the S&P 500 index of 2.02%, according to FactSet.

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