The Dow Weighs IMF Downgrade, Economic Data as Home Depot Climbs, Banks Fall

On Monday, the Dow Jones Industrials bounced back from a tough performance last week, overcoming initial weakness to rise 12 points by 11 a.m. EDT. Industrial production figures from the Federal Reserve were better than economists had expected, rising 0.6% as capacity utilization climbed to its best level since the market meltdown in 2008. Also helping the mood of the market was a boost in confidence among homebuilders, which helped send Home Depot  higher. Yet the International Monetary Fund reduced its growth estimate for the U.S. economy, and that helped send shares of JPMorgan Chase and other financial stocks in the Dow lower.

Source: Home Depot.

What the IMF expects
The IMF now believes that the U.S. economy will grow by 2% in 2014 and 3% in 2015. It doesn't see inflationary pressures becoming a substantial threat in the near future, but it also believes that relatively high levels of unemployment will persist through 2017 and lead the Federal Reserve to keep interest rates low for a longer period of time.

Economic weakness has a mixed impact on JPMorgan Chase and other banks. On one hand, banks have struggled to grow, with JPMorgan in particular suffering from lackluster levels of activity in key trading markets. Low long-term interest rates have actually suppressed interest rate spreads and hurt JPMorgan's profit on its core banking operations, although it's uncertain whether the Fed's reduction of quantitative-easing purchases will let long-term rates rise and interest rate spreads widen.

Yet low rates also encourage borrowing activity, and the key housing market is a big part of what has Home Depot rising more than 1% today. The National Association of Home Builders said today that confidence among homebuilders rose to its best level since the beginning of 2014, and that points to a healthier relationship between home-improvement and contractor specialist Home Depot and its commercial customers. The retailer has done a better job than its peers of capitalizing on the favorable trends in housing, and as long as it can stay on track to keep its competitive advantage intact, Home Depot stock looks like a solid bet for the future.

For JPMorgan Chase, which fell half a percent this morning, growth efforts like the plan to release its first exchange-traded fund later this week will be important in helping the bank move beyond the regulatory struggles it has faced and find new ways to make money. Even if the U.S. economy stays tepid longer than expected, financial stocks in the Dow Jones Industrials still have the ability to climb back from their financial-crisis lows as long as they don't give up on new prospects for profits.

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Dan Caplinger owns warrants on JPMorgan Chase. The Motley Fool recommends Home Depot. The Motley Fool 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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