Dow Drops 100 Points for No Good Reason
Stocks slumped into the weekend as investor anxiety about potential Fed action continued to put downward pressure on equities. The Dow Jones Industrial Average fell by more than 100 points for the third time this week, ending down 105 points, or 0.7%, today. There was no news out regarding monetary policy, but investors seem to be nervous ahead of the Fed's interest rate announcement next Wednesday, which will provide the latest update on the central bank's position on its $85 billion monthly stimulus program.
Consumer confidence dropped slightly from May, according to the University of Michigan, whose June index came in at 82.7, a smidgen below market expectations at 83.0, and down from last month's reading of 84.5. Last month's figure hit a six-year high, however, so the state of the consumer mind-set is still strong. In the day's other significant economic report, the Producer Price Index jumped 0.5% against expectations of 0.1%, but that was primarily due to an increase in gas prices. The core rate, which excludes energy and food prices, rose just 0.1%, in line with estimates, indicating that inflation remains well under control. Industrial production for May was also flat compared to projections of a 0.1% increase.
American Express paced the blue chips' decline for the third time this week, falling 3% today to make its drop 6.5% for the week. Today, the credit card lender took it on the chin from Barclays, which downgraded AmEx from a buy equivalent to a hold. Analyst Mark DeVries said that American Express's growth seems to be moderating as net income increased just 2% in the latest quarter and it missed revenue expectations. Shares of the company had gone up more than 35% this year before this week's slide, and the recent decline and DeVries downgrade seem mostly valuation-based. No need to fret here.
JPMorgan Chase was another big loser, falling 1.9% after it said it would be selling off its private equity arm in an attempt to hue closer to the Volcker rule, which is intended to prevent commercial banks from engaging in risky proprietary trading. The P.E. branch, known as One Equity Partners, had managed $4.5 billion for JPMorgan. The decision is also evidence of the banking giant's desire to streamline itself to curry favor with investors and regulators in the wake of the London Whale fiasco that cost it more than $6 billion.
Of the four Dow stocks that gained today, only Verizon advanced significantly, gaining 0.9% after President Obama issued a memorandum asking government agencies to examine wireless spectrums in order to free up space for telecom companies. Verizon would be a major beneficiary if more spectrum is released as it is the nation's No. 1 wireless provider and could build on its advantage with additional spectrum. The company issued a statement commending the president's move, calling it "another positive step toward setting a national spectrum policy."
Looking ahead to next week, the release of the Fed's interest rate decision and comments on Wednesday at 2:00 p.m. will be the main event. Other reports scheduled that could move markets include housing starts, the Consumer Price Index, and the Philadelphia Fed's manufacturing report.
With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal, or if finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether JPMorgan is a buy today, check out The Motley Fool's premium research report on the company. Click here now for instant access.
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Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends American Express and owns shares of JPMorgan Chase. 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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