What happened
The stock market was having a mixed day on Tuesday: As of mid-afternoon, the Dow Jones Industrial Average was fractionally higher, the S&P 500 was fractionally lower, and the tech-heavy Nasdaq was off by almost 2%. The overall mood of the market, though, was clearly negative, with more stocks declining than gaining.
Wells Fargo (WFC 0.52%), however, was a notable outperformer, with shares higher by about 4% as of 1:55 p.m. ET, after having been up by as much as 5% earlier in the session.
Image Source: Wells Fargo.
So what
The forces moving Wells Fargo higher are the same ones that are causing most growth stocks to plunge -- fears over inflation and the expectation that interest rates will rise. The 10-year Treasury yield was sharply higher on Tuesday at 1.672%, up by more than 4 basis points from where it sat on Monday to its highest level since October.
While rising interest rates create headwinds for most stocks, that isn't the case in the financial sector. Banks make the bulk of their money by collecting interest on loans, so when the rates they can charge on those loans increase, their profits tend to move in the same direction.
Now what
The Financial Select Sector ETF (XLF 0.25%) was up Tuesday as well, indicating a sector-wide rally. But Wells Fargo is one of the sector's strongest performers, and for good reason.
Wells Fargo is in a particularly strong position to benefit from a rising-rate environment, as it is the most consumer-facing of the big U.S. banks. Most of its peers have large investment banking operations and trading desks, but Wells Fargo largely operates as a traditional savings and loan. Thus, as interest rates rise, Wells Fargo's profitability could improve more than its peers.
