Wells Fargo Stock 2026 Outlook

Core Insights - Wells Fargo has experienced a significant stock increase of approximately 32% in 2025, indicating a shift from a defensive recovery to a growth phase following the removal of the asset cap and strong earnings performance in Q3 [2][5]. Asset Cap Removal - The Federal Reserve lifted the $1.95 trillion asset cap in June 2025, which had restricted Wells Fargo's balance-sheet growth since 2018 [5]. - With the cap removed, Wells Fargo has adjusted its medium-term Return on Tangible Common Equity (ROCE) target to 17%-18%, up from 15%, reflecting increased confidence in growth potential [5]. Changing Rate Environment - The Federal Open Market Committee cut the federal funds rate by 25 basis points to a range of 3.50%-3.75% in December 2025, marking a shift from a hawkish stance [6]. - Treasury yields have decreased, with the 10-year yield dropping to approximately 4.16% from over 4.40% in June, creating a mixed scenario for banks like Wells Fargo [6]. Impact on Net Interest Income - Wells Fargo is asset-sensitive, meaning declining rates could reduce net interest income by compressing the margin between loan yields and deposit costs [7]. - However, the removal of the asset cap allows Wells Fargo to pursue balance-sheet growth, providing a competitive advantage over peers like JPMorgan [7]. Growth Strategies - The bank is focusing on onboarding substantial commercial operating deposits, which are cheaper and more reliable than wholesale funding, enhancing its funding profile [8]. - Wells Fargo is expanding into higher-yielding loan sectors, such as credit cards and corporate lending, to counterbalance margin pressure from declining rates [8]. Capital Markets and Investment Banking - Lower interest rates and a more predictable economic outlook favor capital markets activity, stimulating mergers and acquisitions, as well as debt and equity issuance [9]. - The removal of the asset cap allows Wells Fargo to rebuild its Investment Banking division and offer financing commitments necessary for competing in significant corporate transactions [9]. Business Focus Areas - The bank aims to re-engage with new and existing commercial clients to expand its low-cost deposit base [11]. - It is also focused on growing its balance sheet to compete effectively in global markets and capital-intensive investment banking activities [11]. - Additionally, Wells Fargo plans to increase loans in critical sectors, including residential mortgages [11].