MarketBites Daily Investment Commentary: Wells Fargo Jumps On Overhaul Plan I A new Age In News

Stock Market Commentary for 2/17/2021:
  • The Big Picture:
    As Treasury yields remain relatively elevated, investors’ risk appetite has been moderating. Rising yields mean stocks (especially high-flying tech stocks) become less desirable. Energy stocks continued to rally, as freezing conditions in Texas remained in place (Roughly 15 million Americans are out of power, while America’s oil production is down 40%). The latest retail sales report revealed that U.S. shoppers sharply increased their spending in January, boosting confidence in the economic recovery trade.
  • Stock Talk:
    The Winner of the Day: QuantumScape
    The electric vehicle battery maker surged on news that it soon will have enough cash to go into production with its solid-state EV batteries.
    What’s Moving Pre-Market:
    is exciting investors, as the firm reported a 65% revenue jump during its earnings report. J.P. Morgan raised the target price of $TWLO to $465.
    The Loser of the Day: ContextLogic
    Wish parent company “ContextLogic,” continues to be extremely volatile. JS Capital Management recently released information saying that the firm initiated a long position in $WISH, for over 15% of the firm’s portfolio.

  • The Data Room:
    – Per Johns Hopkins, the U.S. reported 63,697 new Covid-19 cases yesterday. So far, 40.2 million Americans have received their first round of vaccinations.

– By Raymond Kanyo


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Top Investment Story #1: Wells Fargo

What is Happening?

Wells Fargo jumped 5.20% Wednesday, after the Federal Reserve approved Step 2 of the scandal-ridden lender’s “rehabilitation plan.” The bank is now trading at an 11-month high.

Why does this Matter?

Wells Fargo suffered the harshest regulatory punishment imaginable in 2018, after the firm’s savings and checking account scandal. As punishment, former Fed Chair Janet Yellen, imposed an asset cap on Well Fargo. This essentially limits the company’s growth until the bank can prove that it has learned from its mistakes.

So far, the asset cap has likely cost Wells Fargo billions of dollars in profit. The stock price also suffered considerably, dropping 44.50% since 2018, while competitor J.P. Morgan rallied 33.9%. The scandal even left the ultimate Wells Fargo bull, Warren Buffett, running for the hills. Buffett sold almost 75 million Wells Fargo shares in the last quarter alone.

So what’s the progress on the 4-step “rehabilitation plan?”
– Step 1: Cleared
– Step 2: Fed officials privately signaled acceptance of the firm’s proposed risk management and governance changes.
– Step 3: Wells Fargo must implement those changes and undergo a third-party review.
– Step 4: The Federal Reserve Board must unanimously agree to lift the sanctions.

Wells Fargo doesn’t have a clear timeline for completing steps 3 and 4. Yet, executives remain hopeful that the sanctions can be lifted by the end of the year.

The Takeaway:

Wells Fargo has significantly underperformed its bank peers since 2018, as a result of the asset cap. Approval of Step 2 of the 4-step plan is a step in the right direction. However, the bank still has much to prove. In the meantime, risk-seeking investors have already bid up the share price considerably, in anticipation of favorable regulatory news.

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– By Raymond Kanyo

– Published in MarketBites Daily Newsletter

Top Investment Story #2: News Regulation Changes The Game
What is Happening?

Facebook and Google go separate ways in dealing with newly proposed laws, which would require certain tech platforms to pay publishers for news.

Why does this Matter?

Australia has started to fight big tech on behalf of publications and journalists, suggesting that firms such as Google, Facebook, and Twitter ought to be paying publishing houses on behalf of the content shared across the sites. Google and Facebook have taken different roads in this battle.

Facebook will be prohibiting Australian publicists from sharing their content on the site. According to Google executives, the proposed laws are shortsighted and misunderstand the relationship between Facebook and Australian publishers. Facebook claims that news content only accounts for 4% of what a user sees on their feed, and that the ban would cost publishers approximately $300M annually.

Google, on the other hand, has decided to enter a deal with News Corp., the parent company of the Wall Street Journal, to pay for licensed content. Google has stated that over the next 3 years, they plan to pay over $1B to news publishers. Google’s “News Showcase,” popular in Brazil and France, has yet to debut in the United States. Soon, it may change how we receive our news stories.

For more on the News Corp. partnership, read here.

The Takeaway:

Technology companies may soon have a new expense from which they have long benefitted: News. With legislation picking up steam around the globe, expect many major players to be proactive in the United States, in hopes of avoiding stricter regulations.

– Written By Jack Dunne

– Published in MarketBites Daily Newsletter

Meet the Authors

Raymond grew up in Budapest, Hungary, where he played tennis for the Hungarian Junior Davis Cup team. At the age of 16, he received the Davis United World College Scholarship, which was established by legendary investor Shelby Cullom Davis, allowing him to attend the Taft Boarding School in Watertown, CT. After Taft, Raymond received a Presidential Scholarship to the Robins School of Business at the University of Richmond, where he studied Quantitative Economics and Finance. Raymond is a CFA Level III Candidate. Prior to joining Taylor Hoffman, Raymond worked at various financial institutions in the insurance, asset management, and financial consulting space. Outside of the office, Raymond enjoys playing tennis at ACAC and Westwood Country Club.

Raymond Kanyo
Product Manager & Investment Analyst

Jack graduated from the Robins School of Business at the University of Richmond with concentrations in Marketing and Finance in 2019. Prior to joining Taylor Hoffman, he worked in high-growth B2B SaaS marketing; assisting Fortune 100 firms to improve their web performance experience. A Long Island New York native, Jack’s hobbies include passionately supporting the Mets and Islanders, and he enjoys skiing whenever he can.

Jack Dunne
Investor Education Specialist
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