Banks Lead Dow's Tumble

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.

With military action against Syria looking increasingly likely, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) stumbled again today, falling 170 points, or 1.1%. The S&P 500 and Nasdaq fared even worse, sliding 1.6% and 2.2%, respectively, giving the S&P its worst day since June, and Wall Street's favorite volatility measurement, the VIX, jumped 12%.

Today, a coalition of countries opposing Syrian President Bashar Al-Assad met in Istanbul, where sources said, "Action to deter further use of chemical weapons could come as early as the next few days." The saber-rattling has made investors nervous not only for its effects on Syria but also the surrounding political volatile region, which is home to some of the world's biggest oil reserves. Oil prices briefly topped $107 a barrel today before falling back to $105.

Back at home, the economic news was more encouraging. The Conference Board said August consumer confidence came in at 81.5, ahead of estimates of 77.0 and slightly up from July's rating at 81.0. With the Dow down 5% this month, the report is a reminder that investor perception is not necessarily directly correlated to the economy's overall performance or consumer spending. The Case-Shiller 20-City Index also showed home prices jumping 12.1% in June, but that news may be irrelevant as more recent signs have shown home-buying slowing down as mortgage rates come up. Tomorrow's pending home sales report should give a clearer picture of the housing market's current status.

On the big board, nearly every blue chip fell and none gained more than 0.1%. Bank of America (NYSE: BAC  ) was the biggest loser, dropping 2.6% on macroeconomic concerns stemming from the military strike and also as a judge rejected B of A's request to dismiss a case accusing it of fraud in the sale of toxic mortgage assets in the buildup to the financial crisis. The move clears the way for the case to begin trial on September 23.

The Dow's other banking giant, JPMorgan Chase (NYSE: JPM  ) , didn't fare much better, falling 2.3%, as it also found itself the subject of new federal scrutiny. The Federal Housing Finance Agency is demanding the bank pay $6 billion to settle allegations that it fraudulently sold $33 billion in mortgage bonds to Freddie Mac and Fannie Mae. JPMorgan is fighting the suit, but experts expect the final payment to be in the billions of dollars. Both JPMorgan and Bank of America have faced an onslaught of legal action in recent weeks over misdeeds that helped bring on the financial crisis.

Microsoft (NASDAQ: MSFT  ) shares were off sharply for the second day in a row, down 2.6%. Today's drop didn't seem to come on any company-specific news, just the simple realization that CEO Steve Ballmer's exit doesn't actually help the company solve any of its problems. Investors cheered the outgoing CEO's retirement announcement last Friday, bidding shares up 7%, but the software maker now must deal with the issue of replacing its CEO along with playing catch-up in areas such as mobile and cloud, where it has fallen behind the likes of Apple and Google.

You may be nervous about the lawsuits against the big banks, but that downward pressure means bargains of a lifetime are still available in financial stocks. However,  it's critical to understand what makes the best banks tick. The Motley Fool's new report "Finding the Next Bank Stock Home Run" demystifies the perils of investing in banks and reveals how savvy investors can win. It's completely free -- click here to get started.


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