On Wednesday, for one day at least, mortgage-led financials reversed course on Wall Street — in a big way — and shed a week’s worth of pummeling at the hands of skittish investors worried about oil and rising inflation, as well as a mortgage market stuck firmly in the mud. For one day, stronger-than-expected results from Wells Fargo & Co. (WFC) were seemingly enough to make equity investors forget about woes in mortgage and housing; oil prices that have fallen more than $10 in two days, easing concerns over inflation, certainly helped matters as well. The Dow Jones industrial average rose 276 points, or 2.5 percent, posting its best daily gain in three months; the S&P 500 jumped 30 points, also 2.5 percent. Goldman Sachs Group (GS) rose 9.54 percent to $172.86, and Wachovia Corp. (WB) jumped to 16.08 percent to $10.54 — proving that the rally spread itself around those that avoided the mortgage debacle as well as those that have run headlong into it. Even shares of battered mortgage insurers rebounded: PMI Group Inc. (PMI) saw its shares jump 19.75 percent, despite a new report from Fitch Ratings detailing the rough road that likely lies ahead for mortgage insurers. After nearly being left for dead by equity investors last week, housing finance giants Fannie Mae (FNM) and Freddie Mac (FRE) also took part in the rally, rising roughly 30 percent each on the day. Oil drops, SEC investigations cited Fueling the rally was a sharp drop in oil prices that had investors breathing a sigh of relief; read more on oil trending via the Associated Press. But also bouncing up shares of mortgage related companies Wednesday was news that the Securities and Exchange Commission had put emergency measures in place to protect so-called “naked short selling,” which some market participants have said are punishing stocks unfairly. Investor relief over inflation may end up being short-lived, however, as consumer prices rose 1.1 percent in June from the month before, according to stats released by the Labor Department — that’s almost double the level recorded in May, and far above the 0.7 percent that economists had expected. Of course, food and energy led the charge; but even excluding both, so-called “core inflation” jumped by 0.3 percent during the month, the fastest spike since January. See full story. Beyond that, renewed investor confidence in Wells Fargo may end up being misplaced, as well — at least in the short run. An earlier story on HW looked at the bank’s enormous exposure to second liens, suggesting that better-than-expected results for Q2 did little to resolve deterioration in the bank’s $84 billion portfolio of home equity loans. And here’s a sign of the times: after Wednesday’s rally, Wells Fargo’s market cap ($89.93 billion) now exceeds that of Goldman Sachs and Citigroup, and is even knocking on the door of Bank of America Corp. (BAC). Disclosure: The author was long FRE and held various put option contracts on WB when this story was written; indirect holdings of companies mentioned herein may also exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.