Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The Dow Jones Industrial Average (^DJI 0.16%) isn't rolling out the red carpet for its three newest members today -- or for investors. The blue-chip index has bounced back from the day's low of down more than 80 points, but it's still off today's open with a 30-point loss as of 2:15 p.m. EDT. Stocks are split evenly between risers and losers on the Dow, but financials -- led by new member Goldman Sachs (GS 0.47%) -- are sinking deep into negative territory. Let's catch up on what you need to know.
Citi's storm clouds take a toll on financials
Goldman investors haven't had much to celebrate on the day the stock began its Dow life. JPMorgan Chase (JPM 1.09%) is not doing much better as a malaise settles over the financial sector today, with Goldman and JPMorgan down 2.4% and 2%, respectively, to lead the index down.
Investors can thank Citigroup (C 0.41%) for today's industry dip. A Financial Times report late yesterday cited sources who claimed the bank's markets business slumped during the summer. Sources said the impact could hit Citi's quarterly income in a big way. The FT's sources also claimed that Citi's exposure to emerging markets didn't help, considering that China and other major developing economies have undergone a massive cash crunch recently.
What does that mean for Goldman and JPMorgan? If the report is true, it's probably more ominous for the former. Goldman blew its second quarter out of the water as the company's investment banking revenue soared 29%. Citi saw its own investments perform well in a second-quarter beat, so a more widespread downturn in the markets business would be a blow to Goldman investors in the third quarter.
Still, Goldman grew its underwriting revenue sharply in the second quarter -- such revenue jumped a whopping 45% -- and the company also boosted its Tier 1 capital ratio. As long as it keeps up growth in other areas, an investment revenue downturn for the summer won't impact the company's long-term success, particularly as its stock has thrived since the recession by gaining more than 78% in the past two years.
JPMorgan also hit high marks for its markets revenue in the second quarter, but the company's cost-cutting measures should demand investors' attention more than any short-term quarterly revenue downturn. The firm beat back lawsuits and scandals in strong fashion, but while cutting costs has propped up JPMorgan's earnings, the company's loan growth has become sluggish -- something happening across the industry. Between that and souring mortgage banking income, JPMorgan has enough kinks to work out for the long run.
