Why JPMorgan Chase and Herbalife Shares Fell Today

Stocks sank for the second day in a row today as momentum names continued to lead the fall. At the close of the session, Dow Jones Industrial Average  (DJINDICES: ^DJI  ) finished down 143 points, or 0.9%, as the S&P 500 dropped 1% and the tech-heavy Nasdaq lost 1.3%, falling just below 4,000 for the first time in more than a month.

The continuing sell-off seems to simply be a sign that investors view the market as overvalued, and are taking profits while they can. Today's selling occurred without a macroeconomic driver, as the producer price index jumped 0.5% in March from February, much higher than expectations of a 0.1% increase, and up from a 0.1% drop in February. While the spike might seem to indicate a sharp rise in inflation, wholesale prices are only up 1.4% in the last year, below the 2% mark set as a target by the Federal Reserve. A rise in prices can also be a positive for the economy, as it indicates a pickup in business activity. A consumer confidence report from the University of Michigan was also strong as its survey hit 82.6, its highest level since July. better than estimates of 81.0, and up from 80.0 in March.  The figure is closely watched, as consumer spending makes 70% of the U.S. economy.

Source: Company Website

JPMorgan Chase  (NYSE: JPM  ) was also weighing on the market today, falling 3.7% after its earnings report missed the mark today. The banking giant said profits fell on weaker trading and mortgage revenue. CEO Jamie Dimon said the decline was simply part of a business cycle, and did not see it as reason for concern, or as a reason for the bank to alter its strategy. Earnings per share dropped from $1.59 a year ago to $1.28, missing estimates at $1.40, as revenue fell 8.5%, to $22.99 billion, also well below expectations at $24.53 billion. Rival Wells Fargo fared better in its earnings report this morning, rising 0.8%, after showing profits increased 14%, to $1.05 per share, better than estimates at $0.97.

Shares of Herbalife  (NYSE: HLF  ) tanked late in today's trading session, finishing down 14% after reports of a criminal investigation came out this afternoon. The news was initially reported in The Financial Times, citing "people familiar with the matter," and follows an investigation by the Federal Trade Commission announced last month. Herbalife responded to the reports, saying, "We have no knowledge of any ongoing investigation by the DOJ or the FBI, and we have not received any formal nor informal request for information from either agency."

The nutritional-supplement supplier has been embroiled in controversy for more than a year now as hedge fund manager Bill Ackman has accused the company of being a pyramid, as the stock price has rocked back and forth since. For now, it's impossible to speculate on the nature of the inquiry as no charges have been filed, and the company has not been accused of any wrongdoing. Herbalife has been operating since 1980, and has survived similar scares before. Investors should pay attention to developments, but today's news isn't a reason to sell on its own.

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  • Report this Comment On April 12, 2014, at 1:38 AM, wjtinney wrote:

    Okay, now let's get to the real reason why J.P. Morgan Chase fell 19% while Wells Fargo increased 14%. Wells Fargo admitted that their increase had nothing to do with the mortgage business because that too decreased with them - as it did for J.P. Morgan. What they did say is that the investments they've made offset the losses and increased their profits 14%. This means that the QE money provided by the Federal Reserve went to investing and that they were able to successfully prop of the values by holding on to stocks that would have otherwise been sold. J. P. Morgan, who was in a position to do the same thing, last year committed to a big pay-off settlement with the SEC and Treasury Department that must show up on its books, somehow. So, JPM could not commit its QE money to investing and instead used it to basically pay off the settlement - limiting the amount it would show on its books as profit. In other words, JPM paid its bills with the Fed's QE money meaning they were responsible for not one dime. Fed money technically goes to the federal government. JPM will be back up in its normal profit margins - matching other companies and institutions in the same business, before the year is out. That is why those at JPM are not worried and will not change strategies with this significant profit fall.

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