There's no joy in Mudville today, despite the last-minute rescue of Cyprus' imploding banking system. Apparently, the markets don’t see any heroes in that doomsday-aversion scenario.
By late morning, both the Dow and the S&P 500 (SNPINDEX:^GSPC) are falling, likely causing nostalgia for their recent runs. As you may expect, the banking sector is getting bruised, as well -- especially Bank of America (NYSE:BAC), which has already dropped by more than 1% from its opening.
Not that B of A is alone in its misery. Citigroup (NYSE:C) is down by about 0.75%, and JPMorgan Chase (NYSE:JPM) has declined by more than 0.65%. This slippage is especially depressing so soon after Bank of America and Citi performed so well on the Federal Reserve’s recent stress tests -- better than JPMorgan, in fact, which has been instructed to rejigger its originally submitted capital plan.
Cyprus deal: A real downer
Taking a closer look at the Cyprus bailout may shed some light on the market jitters that are plaguing the big banks today. While the much-needed $13 billion in funding has been secured, the cost will be passed on directly to depositors with accounts topping $100,000. How much will these account holders be expected to chip in? Perhaps as much as 40%.
If that’s not scary enough for you, the two largest banks on the island will be merged, and some analysts predict a decline in gross domestic product of up to 25%. But, more upsetting still is the panicked realization that this may be the new reality for troubled economies and their outsized banks. And that’s enough to send any too-big-to-fail bank -- and its stock -- into a tailspin.
Trading is heavy in Bank of America today, as well as Citi and JPMorgan, and the tide could turn as the Cyprus news sinks in and panic subsides. For the biggest banks, this week may very well be a tough one, through no fault of their own.
This situation points out, once again, just how volatile the market can be. As Foolish, long-term investors, however, we recognize the need to keep the one-day jumps and jives of a stock in perspective. Even stocks have good days and bad days, so it’s important to realize that sometimes they're not portents of dire news, but merely squiggles that we can safely ignore.