Today is the day Mr. Market has been waiting for. Though the Dow Jones Industrial Average (DJINDICES: ^DJI) is trading down this morning, there is sure to be a bigger swing later this afternoon once the market has heard what Fed Chairman Ben Bernanke and the Federal Open Market Committee have to say. While we wait to hear what's next for the latest round of quantitative easing, investors are being cautious, sending the index down only 17 points as of 11:30 a.m. EDT.
One of the market segments most susceptible to changes from the Fed is the financial sector. Though they've suffered only modest losses, both Dow bank components -- Bank of America (NYSE: BAC) and JPMorgan (NYSE: JPM) -- are down in trading this morning. Of the big four banks, only Wells Fargo (NYSE: WFC) is registering a gain, while Citigroup (NYSE: C) rounds out the lot with another small loss.
All four banks are in hot water this morning from alleged violations of last year's $25 billion mortgage settlement, according to the settlement's independent monitor. Bank of America and Wells Fargo had already been called out for violations from the New York attorney general's office, but the suit brought against the banks is on hold. All of the banks have stated that the violations were addressed once brought to their attention, or, in the case of JPMorgan, once the violation was self-reported.
No penalties or fines have been discussed, but the monitor of the settlement has noted that there is still work to be done to improve the system. An audit of all the banks involved will be completed at different times to assess the compliance with requirements and determine any other violations.
Outside of the mortgage settlement, investors are concerned about how rising interest rates will affect banks. Though JPMorgan CEO Jamie Dimon has already stated that the transition to normalized interest rates will be "scary," he did say that it's something everyone should welcome. While the banks have benefited from the high volume of new refinancings due to the low interest rates, the revenue generated will be much lower than if interest rates were at normal levels.
Forget the hype
With the majority of headlines focusing on the Fed and what will happen next, as a long-term investor you shouldn't be panicking about pullbacks or big swings in the market. Though there is sure to be a market reaction as the stimulus policy tapers off or ends altogether, invest in the businesses you know and are confident with. As the economy levels out, this scary and/or volatile time will become a distant memory and you will be happy knowing you hung in there while others were scared away.
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