Dow Recovers From Early-Morning Drop -- but Can These Stocks Do the Same?

With all of the positive news coming from the stock market within the past two weeks -- especially the meteoric rise of the Dow Jones Industrial Average (DJINDICES: ^DJI  ) -- investors may have been waiting for a sign that it's all about to collapse. This morning's staggering 100-point-plus drop in the Dow suggested that some believe that sign comes from Cyprus, a small European country in need of a big helping hand.

Though the U.S. market will generally react negatively to European economic distress, the Cyprus situation created a lot of concern this morning due to an unprecedented move by the government: Bank depositors will have to pay for part of the bailout. At 6.75% for deposits of less than 100,000 euros and 9.9% for deposits above that threshold, the proposed tax takes advantage of the country's oversize banking system, which owes to Cyprus' status as a tax haven.

Despite the Dow's return back to breakeven, fear that the impact of the bailout could spread across the Atlantic has U.S. bank stocks depressed today.

Bank of America (NYSE: BAC  ) , one of the most heavily traded banks on Wall Street, fell precipitously this morning, though it has since climbed its way back to a modest 0.25% loss. B of A investors can at least take comfort in the fact that the other megabanks are faring much worse. The bank's performance in the Federal Reserve's annual stress tests propelled the stock 3.6% higher before it's close on Friday. That boost has helped the bank maintain most of its gains this morning, as the stock is still well above its Thursday close.

JPMorgan (NYSE: JPM  ) is down 0.8% this morning following the news from Cyprus. Despite passing the Fed stress tests, JPMorgan, along with Goldman Sachs, was ordered to provide a new set of capital plans to the Fed by the third quarter to address weaknesses. This was bad news for the bank, which continues to struggle with last year's "London Whale" debacle and has seen more and more pressure building against its CEO, Jamie Dimon.

Outside the Dow, Citigroup (NYSE: C  ) is the big loser in the financial markets, down 2%. This drop shows that investors may have been overconfident in the bank following its good showing in the stress tests. Though Citi announced that it would not be asking for an increased dividend, investors were still happy with the bank's approval for $1.2 billion in share repurchases.

Most of the banks are on the road to recovery today as U.S. investors are reassured that the situation in Cyprus will not spread to America. With the security of the FDIC, U.S. depositors should be confident that they will not share the fate of Cypriot depositors.

Despite this morning's hiccup, Bank of America is still on a roll. With its stock doubling in 2012 and making continued gains in 2013, many wonder whether more is yet to come. With significant challenges still ahead, it's critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool's premium research report on B of A, analyst Anand Chokkavelu, CFA, and Financials bureau chief Matt Koppenheffer lift the veil on the bank's operations, detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.


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