Wachovia's Rally & Oil's Decline: Rotation from Energy to Financials?

Includes: USO, WFC, XLF
by: David I. Templeton, CFA
Wachovia (NASDAQ:WB) announced a second dividend cut of the year on Wednesday and what happens? The stock spikes higher by 27% or $3.61 to $16.79. The company indicated the third quarter dividend would be reduced to 5 cents per share versus the second quarter dividend of 37.5 cents per share. The dividend totaled 64 cents per share in the third quarter of last year. The reduced dividend will conserve about $700 million of capital per quarter.

In yesterday's earnings release (See Call Transcript), Wachovia said it would loss $8.9 billion as a result of a $6.1 billion impairment charge. A large portion of the charge is related to a $5.6 billion addition to the loan loss reserve.

Given the upward price action in bank stocks late in the day Wednesday and the decline in oil prices (NYSEARCA:USO), could we be seeing a rotation out of many energy stocks into the beaten up financial sector?

(click on charts for larger image)

Wachovia stock chart July 22, 2008
Financial sector SPDR chart July 22, 2008
United States Oil Fund stock chart July 22, 2008

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