Wells Fargo is 'an absolute winner' in stock gains after stress tests: analyst

By Steve Gelsi

Bank stocks have risen after the past three stress tests, with Wells Fargo outperforming all others, Jefferies says

The U.S. Federal Reserve's stress test of U.S. banks is scheduled for release on Wednesday, and analysts at Jefferies are flagging a gain in bank stock prices in the past three years on the day after the results were released.

If that trend holds this year, Wells Fargo & Co. (WFC) will be the top performer as it has been the day after the stress tests in 2021, 2022 and 2023.

"WFC has been the absolute winner in all three years," the analysts found, pointing to a 4.5% gain in its stock price the day after the 2023 stress-test results were released. In 2022, the stock rose 7.5% following the results and climbed 2.7% after the results in 2021.

For 2023 Jefferies plotted the one-day stock performance after the stress-test results on one axis and the stress-test impact on their capital requirements on the other axis.

Bank stocks overall tended to outperform the S&P 500 SPX the day after the stress test results, Jefferies noted.

In 2023, the KBW Nasdaq Bank Index BKX rose 1.8% the day after the stress tests, while the S&P 500 moved up by only 0.4%.

The Fed's annual stress tests are important to bank shareholders because they have an impact on dividends and stock buybacks, which typically enrich the value of share prices.

The Fed uses stress tests to help determine stress capital buffers, an important bank balance-sheet component designed to protect against shocks to a bank's system.

Also read: Fed may ease stress capital buffers for Goldman, Citi and other big banks: analysts

-Steve Gelsi

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06-25-24 0825ET

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