How Will Wells Fargo Stock React To Its Upcoming Earnings?

Wells Fargo (NYSE:WFC) is set to report its earnings July 15, marking the first earnings report since the Federal Reserve lifted the bank’s long-standing $1.95 trillion asset cap in late May. While the lifting of the asset cap is a significant long-term positive, its impact on Q2 results is likely to be limited, as it will take time for Wells Fargo to scale up lending, deposit-taking, and other asset-generating activities. (What the lifting of the asset cap means for Wells Fargo?) Earnings for the quarter are projected to come in at about $1.40 per share per consensus estimates, compared to $1.33 in the year-ago quarter, while revenues are estimated to remain roughly flat at about $20.76 billion, as the company could be weighed down by weaker loan growth and subdued dealmaking activity, given the economic uncertainty following the imposition of tariffs on key trading partners. Separately, cryptocurrencies have started to move again. See Will The Rally In XRP Price Continue?

The company has $271 billion in current market capitalization. Revenue over the last twelve months was $82 billion, and net income stood at about $20 billion. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

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Wells Fargo’s Historical Odds Of Positive Post-Earnings Return

Some observations on one-day (1D) post-earnings returns:

• There are 20 earnings data points recorded over the last five years, with 9 positive and 11 negative one-day (1D) returns observed. In summary, positive 1D returns were seen about 45% of the time.
• Notably, this percentage increases to 50% if we consider data for the last 3 years instead of 5.
• Median of the 9 positive returns = 4.0%, and median of the 11 negative returns = -3.3%

Additional data for observed 5-Day (5D), and 21-Day (21D) returns post earnings are summarized along with the statistics in the table below.

Correlation Between 1D, 5D, and 21D Historical Returns

A relatively less risky strategy (though not useful if the correlation is low) is to understand the correlation between short-term and medium-term returns post earnings, find a pair that has the highest correlation, and execute the appropriate trade. For example, if 1D and 5D show the highest correlation, a trader can position themselves “long” for the next 5 days if 1D post-earnings return is positive. Here is some correlation data based on 5-year and 3-year (more recent) history. Note that the correlation 1D_5D refers to the correlation between 1D post-earnings returns and subsequent 5D returns.

Learn more about Trefis RV strategy that has outperformed its all-cap stocks benchmark (combination of all 3, the S&P 500, S&P mid-cap, and Russell 2000), to produce strong returns for investors. Separately, if you want upside with a smoother ride than an individual stock like Wells Fargo, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

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