Wells Fargo is the third largest bank in the United States, and as the nation’s economy hangs in an undecided state, they have announced that their profit rate fell for the last quarter. The main factor that was pointed to as a cause for this was low interest rates. The U.S. Federal Reserve has been reluctant to raise rates, and while this has had a positive impact on many parts of the economy, it is proving to not be beneficial to the financial sector.
Analysts studying Wells Fargo expected a profit of $1.01 per share, and that was exactly what they returned. However, at this point last year, the company was returning $1.03 per share. Typically, especially in a market where indices keep creeping up in price, companies are expected to beat their year over year numbers. And while the decline in profits was not unexpected thanks to the sector that Wells Fargo is in, it is likely to be an immediate blow to investor confidence as many people will be likely to hold off on putting more money into Wells Fargo until the dust settles and the price drop appears to be at a bottom. If your binary options broker offers Wells Fargo as a trading choice, taking out a series of well-timed put options is likely to be your best bet if you are going to be trading this. Just be aware that the price drop may not be as rapid or as continuous as it might be in other scenarios thanks to the fact that the drop was expected, and it was right on par with analyst expectations. Still, a drop in price is by far the most likely outcome because of this recent development. In premarket hours on Friday, Wells Fargo has already shown signs of significant price loss.
As a short term binary options trader, this is a trend that you should be aware of. When the Fed does raise interest rates, there is a very strong chance that many of the big name stocks that you are used to trading, like Apple, Microsoft, and Google, will see immediate drops in prices. However, other stocks, like Goldman Sachs, Citigroup, and Wells Fargo, will be likely to see increases in price. Also, you should be on the lookout for what this does to currency prices. The interest rates have a direct influence over the popularity of the U.S. dollar, and if the cost of borrowing goes up, the price of the dollar is likely to suffer as a result. This would tilt the odds so that other currencies, like the euro or the yen, would be poised to increase in price. Right now, thanks to their recent vote to exit the European Union, it is still unclear how this would impact the relationship between the British pound sterling and the U.S. dollar.
Moving forward, it’s important to look not just at the individual asset that you will be trading, but at the sector as a whole. Wells Fargo may be suffering thanks to their sector, but are other stocks within that sector outperforming? This is a valid question, especially if a major stock within the sector ends up reporting a higher profit number than expected. For example, Citigroup has its next earnings release in October. If nothing new happens with the Fed, and financial stocks are still hurting, if Citigroup crushes expectations, their stock will skyrocket in price, even though financials will likely be dropping all around them. Trends like this, and being aware of them, will help you to become a better binary options trader.