Dow Dips After Discouraging Housing Data

It's been a rocky start today for the Dow Jones Industrial Average (DJINDICES: ^DJI  ) , as the index has tumbled after a four-day rally. Investors may be shaken following the release of this morning's latest housing data, and with Fed Chairman Ben Bernanke set to speak later this afternoon, there's no way to know yet if their concerns will be pacified. Though the index has taken a bumpy yet precipitous dive, the losses are still manageable, with it sitting on a 29-point loss as of 11:30 a.m. EDT.

Housing in trouble? 
This morning's weekly report on new home-loan application activity was not what Wall Street wanted to hear. The housing rebound has been one of the slow but steady guiding lights to the overall economic recovery. Construction on new homes is up, and so are prices -- bringing hopeful buyers and sellers back to the market. As a driver for both personal and economic wealth, the continued improvements in the housing market have consistently kept investors' chins up when other data was discouraging.

So when this morning's report showed that higher interest rates had driven down new mortgage activity by 3% last week, it fueled the flames of investors' fears surrounding the eventual end to the current Fed stimulus policy. Though the rising rates had previously stalled new refinancing application activity, the new purchase applications had been faring better. The rates remain near all-time lows, and are still attractive based on historical trends -- but if the recent rise is deterring buyers now, what's to be expected as rates normalize following the Fed's stimulus tapering? Based on their reaction this morning, investors believe the result will be further losses on new buyers, which will stall the recovery in the housing market and overall economy.

The latest minutes from the Federal Open Market Committee meeting will be released at 2 p.m. EDT, followed by an unrelated speech from Bernanke shortly before the markets close. Though Bernanke is not speaking directly on the subject of the Fed's tapering plan, Wall Street will surely be looking for signs on next steps from both afternoon events and will trade accordingly.

Banks are taking it on the chin
With fears that new mortgage business will be stalled, the big banks are really taking a hit this morning. Dow components Bank of America (NYSE: BAC  ) and JPMorgan (NYSE: JPM  ) are down 1.41% and 0.53%, respectively. Though both are vying for a bigger slice of the new mortgage business, investors may be happy that their shares are small compared to that of the mortgage king, Wells Fargo  (NYSE: WFC  ) . The San Francisco-based bank controlled a whopping 29% of new mortgage originations in 2012, leaving investors concerned about the impact of a decline in new buyers to the market -- the bank's shares are down 1.91% so far in trading.

Though this news is a troubling sign, perhaps pointing to the "scary" volatility JPMorgan CEO Jamie Dimon alluded to last month when he discussed the changing rate environment, long-term investors should remember a few things. First, the 3% decline in new mortgage applications only represents the activity from one week, which included a federal holiday that closed financial institutions. Second, these big banks are fully aware of how the changes in interest rates will affect their businesses, and they still welcome the change. And finally, the current environment is favoring a short-term perspective with a heavy focus on the Fed. All three of these facts should tell you that a confident focus on the long-term viability of your investments is the best way to weather the current storm of uncertainty.

Regardless of the current market woes, many investors are still terrified about investing in big banking stocks after the crash. With constant rhetoric about Too Big to Fail and new regulations, it's hard to focus on the positive traits of banks as a viable investment option. But the sector has one notable standout whose consistency and strength have the ability to incite investor confidence. In a sea of mismanaged and dangerous peers, it rises above the rest as "The Only Big Bank Built to Last." You can uncover the top pick that Warren Buffett loves in The Motley Fool's new report. It's free, so click here to access it now.


Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 10, 2013, at 1:35 PM, VegasSmitty wrote:

    The Fed is part of the problem, not the solution!

  • Report this Comment On July 10, 2013, at 2:12 PM, SLTom992 wrote:

    Whoop-de-do - imagine that. The housing growth isn't a steady rise. There's actually a lull now and again.

Add your comment.

DocumentId: 2530410, ~/Articles/ArticleHandler.aspx, 4/20/2014 10:13:00 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement