Dow Can't Get Over the Fed

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

After two consecutive bad weeks in which the Dow Jones Industrial Average (DJINDICES: ^DJI  ) lost a respective 1.48% and 2.23%, the index is taking it slow today. The blue-chip average is down a negligible five points as of 12:50 p.m. EDT. The other major U.S. averages have had a similarly bad run lately and are mixed today. The S&P 500 is down about a point, while the NASDAQ has made a modest gain of 0.39%.

The question of when and by how much the Federal Reserve will begin to pare back its bond-buying program is always at the front of investors' minds. The fear of "tapering" has likely been the cause of the market's decline over the past two weeks, and unless investors snap out of their "taper trance," it will likely send stocks lower again this week.

Speaking of stocks moving lower, let's take a look at a few of the Dow's big losers of the day.

Shares of Alcoa (NYSE: AA  ) are down 1.% today on news that Russian-based Rusal, the world's largest aluminum-producer, reported a second-quarter loss of $208 million and is planning to cut its overall production capacity by 8.5%. Just last week we saw Alcoa announce that it would lower production at a plant in Brazil. This lowering of output is an attempt to help support aluminum prices and keep them from dropping further. However, the problem with these cuts is that if other producers don't follow suit, then the worldwide supply of aluminum may not decline, therefore letting prices continue their four-year decline. Further, with all this supply going offline, when will it be able to come back online, and what will happen to prices?

Shares of the Dow's banking stocks, Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) , are down 1.2% and 2.2%, respectively. The banking industry as a whole received some bad news today as the Federal Reserve announced that it had found fault with every bank that had previously undergone a stress test, saying every lender needed to improve its capital planning. Furthermore, the Federal Reserve will look at 30 banks in this year's stress test -- not just 18, as it had during previous tests. 

On top of that news, it was announced that U.S. regulators are investigating JPMorgan's hiring policies in China. The Securities and Exchange Commission is reviewing the hiring of a former Chinese banking regulator's son and the daughter of a Chinese railway official. The allegations claim that the individuals were hired so that JPMorgan could gain access to multimillion-dollar contracts through the new relationships the bank had formed. This is just the latest in a string of legal issues, but in that regard JPMorgan is hardly alone among financial institutions. The good news about these banking-industry scandals can lead to undervalued shares, giving patient investors the opportunity for handsome long-term returns.

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