Don't Bank On a Big Dow Climb Today


The Dow Jones Industrial Average is on the decline again today as investors try to sort out the meaning of conflicting economic data. With Wall Street's main focus continuing to fall on the Fed's next move, uncertainty reigns supreme. Just before 11:30 a.m. EDT, the index was down 117 points, with little upward momentum in sight.

Show me the data
If you're watching for signs in the economic data releases today that might help you determine the Fed's approach to continuing its stimulus program, good luck.

With a disappointing jobs report from ADP showing only 135,000 new jobs were added to the private sector in May, falling below the expected 167,000, you may believe this data points to the Fed maintaining the current rate of bond repurchases. Since the labor market was to be the prime recipient of the stimulus' aid, a lack of forward momentum in hiring could signal that we're not on the right track yet.

But the recent gains in the labor market, spurring on many members of the Federal Open Markets Committee to support a cut in the current plan, has been mainly in the slowing of job cuts -- not hiring. Though it's clear that hiring needs to pick up for a full recovery to start, that hasn't been the case so far, and it hasn't stopped increasing support for curbing the stimulus plan.

Housing is the second piece of the recovery puzzle so far, with continued signs that the housing market is steadily rolling along. But this morning's MBA Purchase Applications report showed the second week of declines in new financing applications, with an 11.5% drop from last week. The drops have largely been driven by rising interest rates -- surely a sign that the Fed shouldn't allow rates to increase from the near-zero levels we've been enjoying.

But the big decreases have also been heavily focused in the refinancing segment of the applications -- a commonsense occurrence when you factor in higher rates. Refinancings accounted for 68% of all the application activity. Though this week did see a decline in new purchase activity, last week's report showed an increase. Pressures from a declining inventory of homes and subsequent price increases may be the biggest contributors to this week's drop.

Taking it to the banks
Both of the Dow's bank component stocks are dealing with some old business that they thought they had resolved.

JPMorgan is also down in the dumps today, with an Alabama sewer debacle soiling its chances of reaching positive territory. The bank has agreed to forgive $842 million in debt owed to it by Jefferson County, Ala., from derivatives and swaps the county purchased to finance a new sewer system before the financial crisis. Some county-employee corruption and a financial crisis later, the county had to declare bankruptcy in 2011. Though JPMorgan had already agreed to a $722 million settlement with the SEC over its involvement with the Jefferson financing, the new agreement with creditors will allow the county to emerge from bankruptcy.

Bank of America headed into the third day of its hearing over a two-year-old settlement with investors for a batch of mortgage-backed securities that turned sour. The $8.5 billion on the table is being objected to by some large names, including AIG, which objects to the size of the settlement. AIG is basing its argument on another insurer's experience, when MBIA reached a settlement over MBS's for $0.60 on the dollar. If that amount became the basis for B of A's case, the price tag could reach $60 billion. The bank is arguing that it had the right to put its Countrywide segment into bankruptcy instead of offering the current amount to investors, but instead chose to offer a deal.

Outside the Dow, Citigroup is also down following its return to the courtroom over a deal gone sour. Private equity firm Terra Firma claims that the bank lied about a second bidder in its purchase of publisher EMI, driving the price up unneccessarily. Though the case had been heard in court before, and Citi had prevailed, a federal appeals judge overturned the ruling based on improper jury instructions. The case could cost the bank up to $8.3 billion.

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