Why JPMorgan Sank Like a Stone This Week

With the closing bell having mercifully put this week of trading out of its misery, JPMorgan Chase (JPM) is down 3.31% for the week. As bad as that sounds, it's better than Citigroup's 5.8% loss. Blame it all on the Federal Reserve's big news; but when all is said and done, the central bank may have done investors a huge favor.

In case you missed it
Of course, the big news was Ben Bernanke's Wednesday announcement that the Fed will begin tapering quantitative easing by the end of this year. QE is the central bank's program of $85 billion in bond purchases each month.

Bernanke gave mid-2014 as the target date for the end of the bond purchases, when unemployment is projected to hit 7%. Interest rates will be kept low until unemployment hits 6.5%.

Foolish bottom line
The Fed chairman went out of his way to stress that tapering will occur only if the economic data continues trending positive. Bernanke has clearly not left investors hanging. He's been talking about tapering for months, likely preparing markets for what he knew had to happen: the slow but sure winding down of QE. The Fed couldn't keep expanding its balance sheet at the rate it was going forever.

Yet, stock, bond, and commodity markets around the world freaked out. Somewhere down deep, investors everywhere knew this was coming; yet it was a shock to finally have confirmation. Though QE3 -- the third round of QE -- had only begun last September, it feels like it's always been there. But this sell-off of JPMorgan, Bank of America, Citigroup, and countless other stocks, could be the best thing to happen to the stock market in ages.

For some time now, stock indices have continued to hit new highs, driven to those heights by optimistic investors looking for a good place to park their money. But what was this optimism based on? The economy is getting better and better, but you could easily make the case that the economy isn't good enough to warrant the kind of investor optimism we've seen.

And where did all the money come from? Maybe from the excess liquidity the Fed has been pumping into the markets for the past four years, but especially since last September.

Bubbles are best identified in hindsight, and although Bernanke didn't come right out and say it, somewhere down deep, he may have sensed there was a stock market bubble forming. There may have been other bubbles forming, as well -- and they all needed popping.  If this sell-off stabilizes relatively soon, there's every reason to believe the stock market had reached a level higher than reasonable valuations could account for.

The Foolish bottom line? JPMorgan is a great company to be invested in right now. Jamie Dimon's roles as CEO and COB are secure, the bank's balance sheet is as fortress-like as ever and, even with this week's dismal performance, the stock has still returned 17.51% year to date. As always, Fools, tune into the fundamentals of the companies you're invested in, and tune out the market noise. Take the long-term view, and leave the compulsive ticker checking to the day traders. Your portfolio will thank you, even if your broker won't.

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  • Report this Comment On June 21, 2013, at 6:58 PM, Rusty56 wrote:

    Hey John, do you think JPM went down this week because the Dow tanked 400 plus points. Other than that, noCan you say the same thing about lamost every Dow component????

  • Report this Comment On June 21, 2013, at 9:59 PM, nevgreco wrote:

    Has JPM started their buy back of their stock???Let the investors know....%^,(088)%

  • Report this Comment On June 21, 2013, at 10:58 PM, airjackie wrote:

    Why you ask before more lawsuits for continued crimes and CEO Jamie Dimon lied to the shareholders again and they fell for his lies. Everyone knows the banks are doing the same corrupt things while paying large fines when caught. It's not Jamie's money and the push is to make up a lie to get Obama Impeached to get another bank bailout. Banks have paid lawmakers for protection and their failing.

  • Report this Comment On June 22, 2013, at 10:22 AM, Rusty56 wrote:

    Airjackie - JPM never needed the feds bailout money, don't you f- ing get it. They were forced to take the fed money. This bank has always been profitable and always will be so they don't need any handouts from the fed period. What crime has Jamie committed?? Please let us all know. Sure you didn't lose your teller job and just sour??

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