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China, Big Banking Hold Back the Dow

The market has bounced back from a terrible opening to start the week, with the Dow Jones Industrial Average (DJINDICES: ^DJI  ) five points in the green as of 2:30 p.m. The number of risers and losers from the index's blue-chip stocks remains fairly even. The financial sector has taken a whack at the Dow so far, with JPMorgan Chase (NYSE: JPM  ) leading the laggards. Let's catch up on what you need to know.

New and old worries from China's economy
HSBC's Purchasing Managers' Index for China last month indicated ongoing sluggishness in the nation's manufacturing sector. The final PMI arrived at a mark of 48.1, still nearly 2 percentage points below the neutral 50 score that indicates neither expansion nor contraction in manufacturing. The Chinese government's own official measure ranked the country's PMI slightly higher, but regardless, Beijing needs to find new ways to stimulate this vital sector if the world's second-largest economy -- soon to be the largest, by some measures -- wants to stay on pace for the 7.3% GDP growth projected for 2014.

Beijing's loosening of capital registration requirements has helped inject some life into new business growth over the past two months, but it'll need to take more action to sustain the slowing economy's momentum. The fall in exports has grown into a worrying problem, considering China's reliance on net trade surpluses for growth: HSBC and Markit reported a contraction in new export orders for the April, according to Bloomberg. Investment has pulled back from emerging markets recently with concern over the pace of growth in many of the world's top emerging economies. If China can't boost domestic consumption, it'll have a tough time stemming the pace of declining growth figures in coming years.

The financial sector has faced its own worries over the first third of this year, and fears are cropping up around Wall Street again today as JPMorgan's stock has nosedived by 2.7%. Earnings and revenue were both down substantially in the company's recent disappointing earnings report, but the pain might not stop with last quarter. JPMorgan cautioned today that equity trading and fixed-income revenue are likely to plunge by another 20% in the second quarter. While JPMorgan has done a good job in its commitment to fight costs recently, regulatory scrutiny and the ongoing easing of Federal Reserve stimulus measures isn't likely to lighten the bank's burden in coming quarters. Don't expect a turnaround anytime soon for this stock's 2014 if the company's predictions come true.

The same can be said for some of Wall Street's other big names. Goldman Sachs'  (NYSE: GS  ) stock has followed in JPMorgan's wake today, dropping by 1.8% so far. The stock has tumbled by more than 12% since 2014 kicked off, and ongoing weakness across equity trading and fixed income would be a big blow to the company's near future results. Goldman Sachs already saw fixed income revenue fall off 11% year over year in its most recent quarter, and equities revenue tumbled by 17%. Goldman's managed to avoid the ups and downs of the mortgage industry and performed well through investment banking, but while the stock's relatively cheap valuation makes it a tempting long-term play for such a solid company, expect a turnaround from this Wall Street giant to take some time. For investors looking to get into this sector for the long run, however, 2014's slump might just be the best time to buy.

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Dan Carroll

Dan began writing for the Motley Fool in 2012. He is a health care specialist who also follows the defense industry along with tracking the broader U.S. and international markets.

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Related Tickers

8/31/2015 3:51 PM
^DJI $16556.55 Down -86.46 -0.52%
GS $189.01 Up +1.26 +0.67%
Goldman Sachs CAPS Rating: ***
JPM $64.27 Up +0.14 +0.22%
JPMorgan Chase & C… CAPS Rating: ****