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Why JPMorgan Is Headed Down the Toilet Today

Jessica Alling
June 5, 2013

After a quick spike in early trading, JPMorgan Chase (NYSE: JPM) investors quickly started dumping shares. While all of the big banks are struggling this morning, JPMorgan has just come to an agreement on some old business that came back to bite it in the butt. With economic news not helping the market overall, JPM and its compatriots are in for a long fight in trading today.

Economic uncertainty
Investors hate not knowing what's going to happen. And yet that's part of the risk of participating in the stock market. Lately, overall performance has taken a break as investors try to reconcile conflicting economic data with the Fed's future plans for its stimulus policy. This morning's disappointing ADP jobs report showed a smaller than expected increase in private sector job growth. With only 135,000 jobs added, while expectations had rounded out at 167,000, the labor market has yet again given mixed signals to investors. While hiring is still slow, the recovery cannot gain speed, curbing the Fed's choices on reducing bond repurchases.

But the future is still uncertain, and banks are taking the brunt of the negative impact. But while the change in Fed policy may lead to investors pulling back in the market, slowing the recent big gains for banks, the possibility of higher interest rates should be an exciting long-term prospect for bank investors. Interest rate pressures have cut revenue growth and made it harder for banks to produce returns. We'll just have to wait and see how this plays out.

Down the drain
JPMorgan, much like Bank of America (NYSE: BAC) and Citigroup (NYSE: C), is finding itself with new problems associated with old business. While JPM hasn't had to step back into the courtroom like its rivals, it does have to settle some old scores. Because of its sale of derivatives to municipalities back in the day, JPMorgan may be facing up to $1.5 billion in losses.