Why Big Banks Are Sending the Dow Lower

Throughout the U.S. economic recovery, progress on the employment front has lagged behind more promising indicators, making many question whether ordinary Americans are benefiting from positive economic trends. Today's economic data raised that question once again, as the latest report on private-employer job growth came in with gains of 158,000 jobs in March, below expectations for 200,000. With the Institute for Supply Management also reporting that its gauge of the services sector showed less vigorous expansion than expected, investors took the opportunity to take profits. As of 10:45 a.m. EDT, the Dow Jones Industrials (DJINDICES: ^DJI  ) are down 41 points, or 0.28%, while the broader market has fallen slightly more in percentage terms.

Among the biggest decliners are large banks, with Bank of America (NYSE: BAC  ) leading the Dow downward with a 2.5% drop and JPMorgan Chase (NYSE: JPM  ) close behind, falling 1.9%. The Mortgage Bankers Association reported that weaker refinancing activity led to a 4% decline in home loan applications last week. Even though B of A and JPMorgan both suffered big losses from their respective mortgage activity during the financial crisis, they have nevertheless relied on mortgage-related revenue in their subsequent recoveries. Any hint of subsiding mortgage-loan activity could slow their rebound, hurting share prices that have already posted impressive returns over the past year.

Beyond the Dow, Tesla Motors (NASDAQ: TSLA  ) has lost 7.8% after the electric-car manufacturer announced last night that it would offer a lease-financing deal for its popular new Model S. The arrangement involves customers putting 10% down for the car, making payments for 36 months, and then having the right to sell the car back to Tesla for an amount tied to the residual value percentage of the Mercedes S-class sedan. Alternatively, they can keep the car and pay it off after 66 months. Even though this may provide some assurances to customers about the reliability of the Model S, it may not succeed in driving much additional business while introducing some risk for Tesla.

Finally, refining stocks were broadly lower, with Phillips 66 (NYSE: PSX  ) falling 6.4%. A combination of negative guidance from analysts and news that refiners expect to need to spend hundreds of millions of dollars to comply with pollution standards drove the declines. Nevertheless, with high prices for gasoline and other refined products persisting, Phillips 66 and its peers appear poised to reap profits for quite a while.

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