Financials Help Lift Dow to Record Heights As Goldman Sachs, JPMorgan Chase Lead

The Dow Jones Industrials jumped 112 points to a new record, with financial stocks providing some market leadership.

May 12, 2014 at 9:05PM

The Dow Jones Industrials (DJINDICES:^DJI) set their third record close of 2014 Monday, with a gain of 112 points reflecting the strength of the overall market. The S&P 500 reached a new all-time record as well, and big-bank financial stocks were among the best performers in the stock market, with Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) in particular helping to lead the Dow Jones Industrials higher.

In general, banks both within the Dow Jones Industrials and outside it celebrated signs that the low-interest rate environment of solid but not extraordinary economic growth might continue well into the future. As the U.S. economy continues to fare better than many other major economies elsewhere in the world, U.S. banks have a potential competitive advantage in being closer to domestic corporations that need their services.

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Yet even though JPMorgan Chase stock rose 1.2%, the bank had a lot of mixed news Monday. On the business front, The Wall Street Journal reported that JPMorgan Chase was looking closely at its relationship with some of its banking-institution clients, which use JPMorgan to clear payments, process transactions, and provide other operational functions. The problem for JPMorgan is that these relationships can cause systemic and regulatory risk, and so some relationships might not be profitable enough to justify keeping as oversight gets tighter. Meanwhile, reports in the New York Post suggested that JPMorgan CEO Jamie Dimon might decide to leave the Dow component bank because of the adverse regulatory environment. Some would see such a move as a positive, but Dimon has played an important role in leading JPMorgan Chase's recovery. The fact that the stock defied negative analyst earnings revisions is also a positive sign.

Goldman Sachs climbed an even more impressive 1.5% as a Barron's report indicated that even in a challenging trading environment, the Dow component's revenue could still climb as long as the global economy keeps improving. As other banks choose to exit certain lines of business to avoid additional regulation, Goldman Sachs has an opportunity to gain greater market share if it decides to buck the trend and stay in those markets. Moreover, with Goldman's reputation, it's more likely to survive regulatory fallout than smaller companies with fewer resources to devote to compliance.

For the Dow Jones Industrials to keep climbing, financial stocks will need to keep supporting the overall market and the economy at large. As long as the bank components of the Dow Jones Industrials can maintain solid gains, then the Dow should be in good shape for the foreseeable future.

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Dan Caplinger owns warrants on JPMorgan Chase. The Motley Fool recommends Goldman Sachs and owns shares of JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. 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.

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.

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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."

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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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