It's easy to pin the recent movements in the stock market to the influence of central banks around the world. Today, it was the Bank of Japan's turn to produce market-moving news, as its failure to take definitive action to ramp up its efforts to stimulate the Japanese economy led to speculation that it won't provide as much of a backstop for investors as expected. Meanwhile, with a German court examining whether moves by the European Central Bank to implement its own version of quantitative easing were legal under German law have raised concerns about the ECB's ability to respond to any future financial crisis in Europe. Add all that to ongoing volatility in U.S. Treasury rates, and it's not surprising that the Dow Jones Industrials (DJINDICES:^DJI) posted a triple-digit decline, falling 117 points in a broad-based decline that sent the S&P and Nasdaq down more than 1%.
American Express (NYSE:AXP) led all declining stocks in the Dow, falling 2.25% on the day in retreating from Monday's all-time record highs. In the past, AmEx's emphasis on high-end cardmembers partially insulated it from the impact of general economic trends, as it was able to rely on the relatively strong creditworthiness of its rich clientele. With efforts to broaden its customer base to offer a wider array of card products, including its Bluebird prepaid debit-card offering targeted at those underserved by banks, AmEx has given up some of that insulation in exchange for greater growth potential. The trade-off will probably pay off for AmEx in the long run, but in the meantime, it does leave the company more exposed to changes in credit conditions and in ordinary Americans' financial health.
The major banks in the Dow also both declined, with JPMorgan Chase (NYSE:JPM) falling 1.6% and Bank of America (NYSE:BAC) posting a 1.4% drop. As Fool contributor Jessica Alling noted earlier today, both banks get some of their global revenue from the Asian region, making the Bank of Japan's failure to act directly relevant to their respective businesses. Yet of equal concern is the reputational damage that the latest report from the Consumer Financial Protection Bureau might have on the two banks' U.S. retail operations, as the financial watchdog agency hammered American banks generally for overdraft policies that lead to hundreds of dollars of annual charges for banking customers. Banks rely on overdraft fees for big portion of their overall income, but the fees draw particular ire from customers who see the banks as being unappreciative of taxpayer bailout funds that saved the banks from collapse.
Finally, outside the Dow, MGIC Investment (NYSE:MTG) dropped nearly 3%. The mortgage insurance company has rebounded sharply because of the housing recovery, with its stock having given shareholders a 10-bagger from their recent lows. But as mortgage rates have risen, refinancing activity has declined, and that has some investors worrying that the housing market's strong performance could come to an end if monthly payments on higher-rate mortgages get too rich for prospective homebuyers. MGIC needs a strong housing market to avoid a repeat of the losses that plagued the industry during the financial crisis.
Fool contributor Dan Caplinger owns warrants on Bank of America and JPMorgan Chase. The Motley Fool recommends American Express and owns shares of Bank of America and 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.