Taking the Long View on the Dow's Big Stories
Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
With little forthcoming on the economic data front and low volume in trading, the Dow Jones Industrial Average is looking for some direction this morning. So far the index has waffled between positive and negative territory, with a measly 18-point loss as of 11:45 a.m. EDT. So what's an investor to do on days like this? Today is the perfect day to recalibrate your focus back to long-term success if you've been caught in the whirlwind of speculation this summer.
The big story
Since May, investors and analysts have been trying to read the Federal Reserve's crystal ball and determine when tapering of the current stimulus policy will begin. The result has been a dizzying spate of ups and downs for the market, all driven by speculation and fear. And now that Mr. Market has entered the lazy days of late summer, lower trading volumes will generate more volatility and exaggerate the issue. A suggestion: Ignore the Fed fodder.
Words versus proof
Intel is the big gainer of the Dow components this morning. Up more than 3% so far, the tech company is soaking in the good vibes from an analyst upgrade. Piper Jaffray analyst Gus Richard stated that the death of the personal computer has been overly exaggerated as support for his upgrade of Intel shares to neutral, as well as his bump in target price by $2, to $22.
Though Richard may be correct, seeing that most corporate computing needs will still rely on PCs for the foreseeable future, the truth remains that Intel revenue has declined for two straight years. The chipmaker has announced a new line of processors for tablets, called Bay Trail, which is expected to see plenty of use -- placing Intel firmly into the tablet market. But investors shouldn't take Richard's word or the announcement of a new tablet processor at face value.
Though the move to tablets may be a big one for the chipmaker, Bay Trail is still an unproven transition. Investors shouldn't put all of their eggs into this one basket.
Being No. 1 is not always so great
JPMorgan is back in the news with another probe into its business practices. This time the Securities and Exchange Commission is looking into the bank's hiring practices in China based on allegations of bribery to gain multimillion-dollar contracts. The probe revolves around the bank's hiring of two children of highly influential Chinese officials -- the son of a former Chinese banking regulator, who is now the chairman of state-owned financial giant China Everbright Group, as well as the daughter of a Chinese railway official.
Prior to the new scandal, JPMorgan announced that it had raised its legal reserves to $6.8 billion in anticipation of legal matters stemming from regulator probes into its operations. So far those probes have led to criminal charges against two former traders involved in covering up the extent of losses from last year's London Whale trading scandal. But the increase in legal reserves put JPMorgan in contention for the No. 1 spot in legal losses from current leader Bank of America .
Though B of A's highly anticipated legal battle with investors over mortgage-backed securities, which could cost the bank $60 billion, is still in the works, JPMorgan has certainly taken over the headline count for new potential legal headaches. This is probably a welcome respite for B of A's investors.
For banking investors in general, continued legal battles have been a struggle. They cut into profit as well as investor confidence. But overall, taking the long view of the bank's prospects means accepting that there will be more legal headaches down the road. Focus on whether or not the bank's operations can withstand the related losses, and whether growth will outweigh those losses.
Legal battles are not limited to these two megabanks, but the focus on potential suit-related losses has certainly dimmed the potential of the banking sector. In fact, many investors are terrified about investing in big banking stocks after the crash. But the sector has one notable standout. In a sea of mismanaged and dangerous peers, it rises above the rest as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.
The article Taking the Long View on the Dow's Big Stories originally appeared on Fool.com.
Fool contributor Jessica Alling has no position in any stocks mentioned. The Motley Fool recommends Bank of America and Intel. The Motley Fool owns shares of Bank of America, Intel, 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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