What Happened?
A number of stocks fell in the afternoon session after disclosures from two lenders raised concerns about deteriorating loan quality across the industry.
The drop was triggered by specific incidents that have spooked investors. Zions Bancorp announced a $50 million charge-off—a debt the bank doesn't expect to collect—on a single loan. Separately, Western Alliance Bancorp revealed it was dealing with a borrower who had failed to provide proper collateral. These events are compounding existing anxieties about the regional banking sector, which is already under pressure from elevated interest rates and declining commercial real estate values. The news has heightened investor concerns that more cracks could appear in borrowers' creditworthiness, potentially leading to increased loan losses and reduced profitability for other banks in the sector.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Thrifts & Mortgage Finance company Walker & Dunlop (NYSE:WD) fell 4.2%. Is now the time to buy Walker & Dunlop? Access our full analysis report here, it’s free for active Edge members.
- Thrifts & Mortgage Finance company Ready Capital (NYSE:RC) fell 3.1%. Is now the time to buy Ready Capital? Access our full analysis report here, it’s free for active Edge members.
- Thrifts & Mortgage Finance company PennyMac Mortgage Investment Trust (NYSE:PMT) fell 3.4%. Is now the time to buy PennyMac Mortgage Investment Trust? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Walker & Dunlop (WD)
Walker & Dunlop’s shares are somewhat volatile and have had 13 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was about 2 months ago when the stock gained 6.7% as the major indices rebounded, as Fed Chair Jerome Powell delivered dovish remarks at the much-awaited Jackson Hole symposium. Powell suggested that with inflation risks moderating and unemployment remaining low, the Federal Reserve might consider a shift in its monetary policy stance, including potential interest rate cuts. This outlook eased market concerns about prolonged high interest rates and their impact on economic growth. The prospect of lower borrowing costs bolstered investor confidence, particularly in sectors that have lagged, leading to a broad rally across the market.
Walker & Dunlop is down 15.4% since the beginning of the year, and at $80.71 per share, it is trading 30.6% below its 52-week high of $116.31 from October 2024. Investors who bought $1,000 worth of Walker & Dunlop’s shares 5 years ago would now be looking at an investment worth $1,360.
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