Why Financials Are Helping the Dow Cut Its Losses

Why Financials Are Helping the Dow Cut Its Losses

The stock market has had trouble building on yesterday's record high, as mixed economic data and earnings reports have made investors question their bullishness. As of 1:15 p.m. EDT, the Dow Jones Industrial Average is down 35 points, or 0.23%, owing almost entirely to a 7% plunge in the price of Boeing shares after reports of a fire aboard one of the manufacturer's 787 Dreamliner aircraft at London's Heathrow Airport raised concerns that the aircraft maker may not have solved its battery problems after all.

Still, the financial sector has remained a bastion of relative strength today, with the Dow's financial stocks performing quite well. Yet while JPMorgan Chase reported an impressive earnings beat this morning, the rest of the financials are actually outperforming the big bank. Traditional banking rival Bank of America is up 1.6% as shareholders look ahead to the bank's own quarterly report next Wednesday. The stock has already produced dramatic gains in the past year and a half, and despite having strong capital ratios that put it ahead of many of its peers, B of A will have to work hard to meet its goal of improving its standing in the home-mortgage lending market. Favorable mortgage results from JPMorgan suggest that rising interest rates won't necessarily prevent B of A from raising its lending profile, but they do set the bar higher for B of A to post sufficient growth to improve its market share.

American Express is up 1.5% as a follow-through from yesterday's rise after a Nomura analyst raised his earnings estimates on the card company, which is due to release its earnings next week as well. Rising stock markets and improving economic prospects create a wealth effect that can lead to greater consumer confidence and spending, especially for the affluent clientele who make up AmEx's bread-and-butter business. Given that AmEx benefits from both rising creditworthiness among its customers and greater transaction volume through its card network, good news for the upper-class economy should be good news for AmEx.

Finally, Travelers has climbed 1.3%. Insurance companies generally cheered the dissipation of Tropical Storm Chantal to a "tropical wave" this week, as the threat of yet another costly hurricane hitting insurers' net income represents the most unpredictable aspect of investing in insurer stocks. More importantly, though, rising bond yields have raised the ability of Travelers and its peers to generate greater income from their investment portfolios without taking on undue risk. The resulting increase in investment proceeds should fall straight to the bottom line as profit, helping Travelers make the most of its premium revenue.

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The article Why Financials Are Helping the Dow Cut Its Losses originally appeared on Fool.com.

Fool contributor Dan Caplinger owns warrants on Bank of America and JPMorgan Chase. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends American Express and Bank of America. The Motley Fool owns shares of Bank of America and 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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