Another Big Dow Drop Raises Correction Fears as Goldman Sachs, JPMorgan Chase Fall

Earnings reports and economic data gave conflicting reads on the U.S. economy, sending the Dow Jones Industrials downward in confusion.

May 15, 2014 at 11:00AM
Longview

On Thursday morning, the Dow Jones Industrials (DJINDICES:^DJI) were buffeted by a number of different reports giving conflicting information on the health of the stock market and the U.S. economy. A troubling drop in industrial production combined with rising consumer prices and weak confidence figures from homebuilders contributed to a general sense of unease, even though conditions in the labor market and in the manufacturing sector in a couple key regions of the country were better than expected. As of 11 a.m. EDT, the Dow was down 148 points. Looking beyond the major Dow components reporting earnings last night and this morning, financial stocks took an outsized share of the stock market hit this morning, as Goldman Sachs (NYSE:GS) and JPMorgan Chase (NYSE:JPM) were among the top Dow decliners.

Jpm

Clearly, issues such as homebuilder confidence that affect the housing sector have a big impact on banks such as JPMorgan Chase and Goldman Sachs. Concerns about housing affordability and rising interest rates have weighed on JPMorgan's mortgage business, and even though interest rates have fallen back recently to their lowest levels of 2014, few believe that the modest rate reduction will lead to a massive resurgence of homebuying activity or mortgage refinancing. For Goldman Sachs, the impact is less direct, as the investment bank doesn't do an appreciable amount of business in the mortgage lending arena. But given that mortgage-backed fixed-income securities make up such a big part of the overall bond market, Goldman needs a healthy housing sector in order to keep that market functioning smoothly and create opportunities for its fixed-income trading operations to take advantage of favorable conditions in the mortgage market.

Yet today's news alone isn't the only factor affecting Goldman Sachs and JPMorgan Chase. Both face the question of how to meet capital requirements without sacrificing too much of their growth potential. Under the Basel III convention, as well as added requirements from U.S. regulators, big banks must make meet minimum capital reserve amounts, with new rules boosting those minimum limits and requiring banks to raise tens of billions of additional capital over the next four years. In the long run, every dollar of bank capital required to remain on the books is a dollar that can't be used for more profitable activities like lending, and that could hamstring JPMorgan Chase and Goldman Sachs in their efforts to return earnings to pre-crisis levels.

As fears of a correction in the Dow Jones Industrials mount, investors should keep their eyes on financial stocks. As much as the general public has grown to despise the banking sector, JPMorgan Chase, Goldman Sachs, and the other banks both within and outside the Dow Jones Industrials will be a necessary component of the growth of the U.S. economy.

Big banking's little $20.8 trillion secret
There's a brand-new company that's revolutionizing banking, and is poised to kill the hated traditional brick-and-mortar banks. That's bad for them, but great for investors. And amazingly, despite its rapid growth, this company is still flying under the radar of Wall Street. To learn about about this company, click here to access our new special free report.

Dan Caplinger owns warrants on JPMorgan Chase. The Motley Fool recommends 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers