Dow: Why Banks Didn't Play Ball

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It was a solid day for stocks today, as the Dow and the broader S&P 500 Index both advanced 0.6%. The S&P 500 achieved a new five-year high, but financials didn't play along -- they were the only losing sector today. In fact, JPMorgan and Bank of America were two of the three worst-performing stocks in the S&P 500, declining 0.8% and 4.2%, respectively. (Unsurprisingly, then, they were the worst performing Dow components.)

Why banks didn't play ball
Both B of A and Citigroup reported earnings today. The results were not well received; as mentioned above, B of A shares fell 4.2%; meanwhile, Citi shares lost 2.9%. As one New York money manager told Bloomberg:

Both organizations are, for lack of a better word, somewhat lost. [They] have been spending a significant amount of time dealing with the problems of the past rather than aggressively marketing the organizations.

I suspect this view is relatively popular among professional investors, who find it convenient to conflate the two companies' positions, performance, and prospects. (How's that for alliteration?) A reductive model of the universal banks has J.P. Morgan in a league of its own, completely separate from the second tier made up of B of A and Citi, which are still floundering.


Of course, the notion that this view is widely held is merely a hypothesis, and one that is difficult, at that. But if it is true, I think that part of the decline in B of A's stock is attributable to that of Citi's. You might retort: Why, then, would the former fall harder than the latter? Good question, but I think the recent relative performance of the two shares may help to answer it:

 Chart

Data by YCharts.

As the graph clearly shows, B of A shares have dusted Citi's over the three-month period ended yesterday, while both have smashed the broad market. In other words, on the heels of a strong run-up in their stock prices, B of A had further to fall than Citi.

You may have guessed that I don't share the view that B of A and Citi are similar organizations. Keep in mind, variant perception is a potential source of opportunity -- assuming it is correct.

To learn more about the most-talked-about bank out there, check out our in-depth company report on Bank of America. The report details Bank of America's prospects, including three reasons to buy, and three reasons to sell. Just click here to get access.

The article Dow: Why Banks Didn't Play Ball originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him @longrunreturns. The Motley Fool owns shares of Bank of America and Citigroup Inc . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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