Dow Falls as Financials Struggle; JPMorgan, American Express Lead Declines

As the Dow looked at three straight down days this week, financials are holding the average back. Find out why AmEx and JPMorgan Chase are the sector's biggest Dow losers today.

Mar 12, 2014 at 12:30PM

On Wednesday, the Dow Jones Industrials (DJINDICES:^DJI) stayed in the malaise that has plagued the market all week, as investors ponder whether a sixth-straight year of bull-market gains will be in the cards for 2014 and early 2015. As of 12:30 p.m. EDT, the index was down 31 points, but most financial stocks among the Dow 30 were falling more sharply. JPMorgan Chase (NYSE:JPM) and American Express (NYSE:AXP) led the way down among the Dow's financials with losses of about three-quarters of a percent, ranking them among the worst performers in the entire Dow.

In one way, high-profile financial stocks are partially a victim of their own success. For JPMorgan Chase, Goldman Sachs (NYSE:GS), and other Wall Street banks, the strong performance in the financial markets has caused compensation costs to rise, with Wall Street's payouts of bonuses for 2013 reaching their highest level since 2008, according to the comptroller of the state of New York. At $26.7 billion in aggregate, bonuses equated to an average payout of $164,530, the third best year in history. Compensation pressure is a constant struggle for financial firms, as even when profits are under threat from billion-dollar legal settlements and other regulatory issues, top-notch talent demands top-scale pay in order to avoid jumping ship and taking their skills to a competing company. As a result, even when times are good in the markets, Goldman, JPMorgan, and other financials can struggle to keep overhead down and profits up.

The other challenge that financials face is the growing concern that many companies have already seen their best days during the recovery. Card giant American Express dug itself out from under potentially huge credit-related losses created during the market meltdown, and it has emphasized initiatives to try to broaden its customer base. Targeting customers who it might have refused to serve in the not-too-distant past, AmEx is working hard to try to grow, yet some worry that it might also be watering down its brand in the effort to broaden its appeal.

Similarly, insurance giant Travelers' (NYSE:TRV) valuation looks incredibly attractive for investors. Yet the fear is that after a near-perfect year that had very few catastrophic loss events, Travelers has nowhere to go but down once more normal weather patterns assert themselves. That concern over what seems like an inevitable setback for the company could hold back its shares even if this year's loss experience is relatively benign as well.

Financials must play a role in the Dow's success if the index is to continue advancing. As doubts begin to emerge within the financial stocks of the Dow, investors could see more resistance for the average as a whole to keep climbing to new record highs.

The nasty secret about financial stocks
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Dan Caplinger owns warrants on JPMorgan Chase. The Motley Fool recommends American Express and Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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