Dow Futures

The Dow Jones Industrial Average (INDEX: ^DJI  ) fell nearly 1% today after the new Greek parliament failed to form a coalition government. With political opposition mounting, it’s becoming increasingly likely that Greece will exit the eurozone rather than see its economy destroyed through austerity. Although in the end the country may have no other choice, leaving the eurozone would be a logistical nightmare for the country and would put further strain on European banks.

Naturally, bank stocks led the plunge today, with JPMorgan Chase (NYSE: JPM  ) and Bank of America (NYSE: BAC  ) falling 3.2% and 2.7%, respectively. Like most “too-big-to-fail” banks, the two have large investment-banking and trading exposure to global capital markets. JPMorgan generated $10.4 billion (39%) of its pre-tax profits from investment banking, whereas B of A earns $5.7 billion in its global banking business.

Citigroup (NYSE: C  ) , which in addition to its investment banking operations also has significant international operations (nearly a quarter of last-year’s profits were from Europe), fell more than 4%.

What’s more, JPMorgan announced late last week that it expects to lose $2 billion on a derivatives trade gone wrong. Since JPMorgan, along with Goldman Sachs (NYSE: GS  ) , is regarded as one of the most competent banking behemoths, the blowup tarnished not only its image, but also that of the larger trading industry.

In short — stocks could be in for a bumpy ride in the near term while Europe enters the next phase of its slow-motion financial crisis. For long-term investors, this will eventually pass. And by starting to reverse the current course of unsustainable austerity, Europe and the U.S. have a better chance of avoiding worse outcomes.

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The Dow Jones Industrials (INDEX: ^DJI  ) are looking eerily similar to the Seattle Mariners lately, winning one before falling for five straight days. Today the Dow dropped its fifth in a row because of a delayed reaction to the political uncertainty in Greece. The day started off with a massive sell-off but spent the afternoon climbing out of the depths before closing down 0.59%.

With the Greek elections wreaking havoc on the market and increasing uncertainty over a European rebound, the dollar gained ground on the euro as commodities took a swim. Crude prices failed to find support as the freefall continues, with June futures down 0.68% today.

On the day, Fossil (Nasdaq: FOSL  ) topped the list of the worst performers, as the company lost a third of its market value after cutting its growth outlook for the year on the heels of slowing European and Asian demand.

On the other hand, Disney (NYSE: DIS  ) , up 1.10%, turned in a strong back-to-back performance, with today’s performance stemming from the outstanding performance of The Avengers over the weekend and the release of the companies second-quarter adjusted earnings of $0.58 per share, which beat estimates by $0.03.

The Dow components hit the hardest were those in the volatile banking sector and the industrial sector. Bank of America and JPMorgan Chase (NYSE: JPM  ) , the latter down 0.96%, were directly affected by the upheaval in Greece and the increased likelihood that the country rejects austerity measures and defaults on its debts before being removed from the European Union. As for the industrials, Alcoa (NYSE: AA  ) , down 1.29%, saw a strong drop as austerity measures overseas are slowing GDP growth in Europe, coupled with a possible hard landing in China.

The look ahead
The big question is what tomorrow will have in store. Will the European debt issue continue to wreak havoc on the markets, or will the French and Greek elections be but ancillary characters in the week’s outcome? Regardless of tomorrow’s result or even next the month’s, the goal is always to find companies that are capable of continually outperforming the market. That’s why our top analysts have uncovered three companies set to dominate the world. This free report will show you three American companies that have incredible brand names and products that are deeply desired in emerging economies. Delve into this free report and reap the rewards as these companies storm the globe and truly become world-class outfits.

The Dow Jones Industrial Average (INDEX: ^DJI  ) ended its five-day losing streak today, finishing up 89 points, or 0.70%, to rebound from its biggest loss of the year yesterday. The index was helped up by decreasing Spanish and Italian bond yields and hope that the European Central bank could possibly intervene and purchase bonds to ease stress in Spain.

Here are the Dow’s top three gainers today:

Perhaps the main reason for the Dow’s solid day was earnings from Alcoa. The aluminum giant reported after the closing bell yesterday and posted earnings of $0.09 per share, significantly higher than the $0.04 loss that analysts had expected. Alcoa also posted increased revenue of $6 billion, above the $5.77 billion that analysts were expecting. The company is considered a bellwether of the overall economy, because its aluminum is used in products that span all industries, everything from cars to planes to soda cans. Alcoa also reported solid growth in China and reaffirmed its forecast of 7% global growth in 2012.

Bank of America and JPMorgan Chase round out the top gainers on the day. As large banks, these companies are particularly sensitive to the overall economy. Bank of America in particular illustrated the point, as the company has dropped more than 10% just in the past five days before today, and more than 4% yesterday alone. But today’s positive news helped drive the stock up 3.75%, and the company’s share price has now appreciated almost 60% in 2012 alone.

Outside the Dow, Internet media company Travelzoo (Nasdaq: TZOO  ) surged a whopping 28% on the day after news broke that it has sought an advisor for a possible sale of the company. The company boasts 24 million subscribers and could be attractive for companies looking for a presence in the high-end Internet-deals segment. Names already being thrown around as potential buyers are tech giants Google and Amazon.com, both of which are trying to increase their presence in the space.

The big picture
While it’s important to pay close attention to the market, it’s also important to not to get too worked up about what happens in the short term. The most successful stock picks are usually great business that can grow and continue to succeed over many years. Our analysts have uncovered one such company in our new report, “The Motley Fool’s Top Stock for 2012.” It highlights a company that is revolutionizing commerce in Latin America. You can get instant access to the name of this company – it’s absolutely free.

The stress tests are out. The results helped to send Bank of America (NYSE: BAC  ) up 22%, JPMorgan Chase (NYSE: JPM  ) up 9%, and the Dow Jones Industrials Average (INDEX: ^DJI  ) up 2% for the week.

JPMorgan received permission to increase its dividends and stock buybacks. Bank of America soared after it didn’t fail the tests. Of course, the test parameters focused on the results of hypothetical economic conditions, rather than worst-case losses from its legal challenges.

Of the 19 institutions tested, Citigroup (NYSE: C  ) , SunTrust, MetLife, and Ally Financial were the four to fail at least one scenario.

Too-big-to-fails Wells Fargo (NYSE: WFC  ) , Goldman Sachs (NYSE: GS  ) , and Morgan Stanley managed to stay above the 5% Tier 1 common equity threshold.

Despite lobbying from the banks to keep details of the results secret, the Federal Reserve went ahead and released lots of useful information. Here’s how the 19 fared:

The blue amounts are losses under the test’s scenario; red is how much capital would be left over after the carnage.

Although banks would take big losses on their mortgage, credit card, and commercial and industrial loans, the biggest source of losses would come result from trading and counterparties, which should remind us all that a strong Volcker Rule is so important.

Now, the test had its limitations. For one, the worst-case assumptions modeled a more severe recession than the one we just had — mortgage losses, high unemployment, gross domestic product decline, and low interest rates. Kudos for using much more stressful assumptions than in the flimsy 2009 tests. And given the liquidity trap we’re in, it makes sense that a hypothetical double-dip recession sometime over the next few years would be deflationary rather than inflationary, just like the last one. But hopefully in future tests we’ll also get to see how well banks would cope with alternative kinds of financial crisis. At the very least, it would be nice to see what affect moderately rising rates would have.

More importantly, as FDIC Chair Sheila Bair recently pointed out last week, the test looked at risk-based capital levels. Future versions of the test should look at overall leverage, too, since “risk-based” can be a somewhat squishy metric.

Furthermore, the tests, which focused on solvency, aren’t a guarantee that we won’t see another financial panic, with a shadow banking run once again crashing the entire system.

It’s encouraging to see banks performing decently under the tested scenarios, since solvency would decrease the odds that we’ll have to undergo another financial crisis and possible bailout during the next recession. But we still have a long way to go to protect ourselves from the next crisis.

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Today, Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) led the Dow Jones Industrials (INDEX: ^DJI  ) up 0.44%, to 13,252.76, and the broader banking sector helped lead the S&P 500 up 0.60% to close above 1,400 for the first time since 2008. 

The Federal Reserve’s announcement of banking “stress test” results on Tuesday has led to surging bank share prices. The KBW Bank Index is up 8.8% since Monday’s close, including a 2.7% rise today. Here’s how the six largest banks have done (note that all six were part of the 19-bank stress test):

Note that even Goldman Sachs, which has been dealing with the resignation letter from hell, is up. So is Citigroup, which failed one part of the stress test (but only because it got too aggressive in asking for higher dividends and share repurchases) and will have to resubmit its capital plan later this year.

Why has the market responded so favorably? I believe it’s because the stress tests weren’t the watered-down tests we’ve seen from the U.S. and Europe in the past. For its worst-case scenario, we’re talking 13% unemployment, a Dow that falls under 6,000, and a housing market that crashes 21%. Even in that scenario, every bank but Ally Financial exceeded the Fed stress-test minimum 5.0% Tier 1 common capital ratio, if dividends and share repurchases are restricted.

So you can thank the Fed for conducting a plausible stress test and publicizing the robust results bank-by-bank for this banking rally. In an industry with little balance-sheet visibility, this was a step in the right direction.

The Dow Jones Industrial Average (INDEX: ^DJI  ) fell back 97.33 points today, or 0.76%. Amazingly, that relatively paltry loss is the Dow’s worst performance of the year. A full 31 trading days into 2012, and the Dow still hasn’t fallen by more than 1% in a day.

That’s an amazing level of total stability in the market. Last year, 35% of trading days, or 89 days in total, featured the Dow Jones up or down less than 1%. This year, only two out of 31 trading days have resulted in a move more than 1%. That’s a total of only 6% of trading days, a very low level of volatility by historical standards.

Still, the widely followed Volatility S&P 500 index, or VIX, was up over 8% today. That’s a pretty huge jump for a day when the market was flat throughout the first half and closed down less than 1%. Something tells me the year won’t close out with only 6% of days seeing moves of 1% or more.

As we look at a rough day for the Dow, what companies plunged southward? Not surprisingly, some of the biggest losers were in banking. Here’s a snapshot of the Dow’s three worst performers today.

Just barely missing the list was JPMorgan Chase (NYSE: JPM  ) , which fell 1.37%. Banking stocks have rallied throughout the early part of 2012, and that rally is largely predicated an economic rebound that would boost the price of houses and other assets on banks’ balance sheets. Whiffs of instability will continue to send banking shares crashing faster than their peers in the year ahead.

Then there’s Caterpillar. The company is also a candidate for steep falls if sirens are wailing that the global economy is about to hit a speed bump. Caterpillar is a global company that saw 49% sales growth in Asia last quarter. The company sports a higher P/E than many Dow peers based on its heady forward growth projections — this year the big Cat is expected to grow earnings by 25%. Caterpillar’s growth assumptions entail U.S. economic growth of 3% and Asian growth of 6.5%. So, if there’s warnings that those projections could be too optimistic, the logical follow-through is that Cat could be too optimistic in its earnings projections for the year ahead.

In the end, while days like today could make you feel queasy, I still think global brands like Caterpillar are great buys and will live up to their potential in the years ahead. Finally, if you’re looking to get back into banking but large banks like JPMorgan Chase and Bank of America still have too many unknowns for you, The Motley Fool featured it in its brand-new free report: “The Stocks Only the Smartest Investors Are Buying,” which details an under the radar banking play. We invite you to download a free copy — just click here.

The Dow Jones Industrial Average (INDEX: ^DJI  ) is up an impressive 5% so far in 2012. But that’s peanuts compared with the gain enjoyed by its biggest winner so far this year.

Bank of America (NYSE: BAC  ) is up an incredible 45% in a few short weeks. But can its hot streak continue?

Three major factors account for BofA’s huge gains.

First, let’s keep things in perspective. Shares are rebounding after a 58% loss in 2011. Part of the selling toward the end of 2011 and subsequent buying in early 2012 undoubtedly had to do with investors who were selling their losers to capture tax deductions, and institutional investors who were selling their losers so their portfolios would look better to their bosses and investors at year-end reporting. Although momentum can continue to carry stocks, six weeks into the new year, it’s unlikely that this factor will continue to propel BofA.

Second, banks — particularly troubled banks like BofA — are economically sensitive. An improving economy means more attractive opportunities for loan growth, a greater likelihood that old borrowers will be able to repay, and better trading and investment-banking results. With reasonably good employment and manufacturing data coming out so far this year, economically sensitive stocks such as Alcoa and Caterpillar have been top Dow performers as well.

Finally, bank investors are licking their chops after it was announced on Thursday that BofA, Citigroup (NYSE: C  ) , JPMorgan Chase (NYSE: JPM  ) , Wells Fargo (NYSE: WFC  ) , and Allied Financial had settled with federal and state prosecutors over widespread allegations of fraud in the mortgage-servicing industry.

The settlement should be presumed to be favorable to the banks, because (1) a full investigation never actually took place, (2) banks can pay a portion of the settlement with investors’ money, rather than their own, (3) homeowners whose homes were wrongfully taken from them are only eligible to receive some $2,000 from the settlement, and (4) the actual terms of the deal will reportedly be kept from the public until the latest possible date.

Despite the fact that “the cost of doing business” here appears to be relatively small, that doesn’t mean banks are totally in the clear so far as the law is concerned. For one thing, the actual settlement terms don’t even exist yet, so the deal could conceivably fall apart again before it’s inked, though that’s unlikely.

Although we won’t know until the details are made public, reportedly, the settlement won’t cover liabilities over how mortgages were bundled during the financial crisis, nor will it cover MERS (the fake electronic mortgage-tracking system banks used to track mortgages) or prevent homeowners or private investors from suing banks.

In short, the settlement appears to be about a lump payment plus some mortgage-debt relief in exchange for letting banks off the hook for potentially widespread forgery, document fabrication, and mistreatment of borrowers. But what’s unclear is whether the settlement will inhibit prosecution of the aforementioned liabilities. If it does, and the recovery is for real, bank investors could be in good shape. If it doesn’t, and the economic recovery isn’t as strong as it appears, they could be in for a wild ride.

If you’re looking for some safer, less convoluted stocks, I’ll point you to my colleague Anand Chokkavelu’s top banking picks. He details them in our brand new free report: “The Stocks Only the Smartest Investors Are Buying.” It includes one that’s the kind of stock even Warren Buffett might have been interested in during his earlier years. I invite you to grab a free copy. 

After weeks of big gains, The Dow (INDEX: ^DJI  ) closed down 0.13% today after falling 0.5% point earlier.

It’s ordinary for traders to sell after a string of gains. But the last-minute negotiations between the European Union and Greece served as an added reminder today that the improving economic outlook that’s been driving market returns could have vulnerabilities. If conditions in Europe continue to deteriorate (goes the worry), the slowdown in economic activity could spill over into its trading partners, including the U.S.

Greece is caught in a catch-22 — the harsh austerity that the EU is demanding of Greece is almost certain to take a massive toll on its economy, making it even more difficult for the country to repay its loans. The only question left is whether something will get worked out that allows Greece to default in an orderly way that minimizes the damage to other economies and the global financial system. As recently as the fourth quarter, Bank of America (NYSE: BAC  ) , JPMorgan Chase (NYSE: JPM  ) , Citigroup (NYSE: C  ) , and Morgan Stanley (NYSE: MS  ) all had significant exposure to stressed European markets.

Still, so long as Europe avoids a full-blown financial crisis, it could be more likely than most think that the U.S. economy escapes from the Europe’s troubles more or less unscathed. As far as the financial sector goes, regional banks generally have far less exposure to European markets or trading results.

While the market’s day-to-day fluctuations get all the headlines, it’s important for us to remember that it’s long-term performance — not week-to-week price fluctuations — that ultimately matter. If you’re interested in one stock that our chief investment officer picked to crush the market in 2012, check out our brand new report, “The Motley Fool’s Top Stock for 2012.” It highlights a company that is revolutionizing commerce in Latin America. For a limited time, you can get instant access to the name of this company by clicking here — it’s free. 

Unlike yesterday, when the Dow Jones Industrial Average (INDEX: ^DJI  ) started out strong, only to recede later in the day, the index shot out of the blocks and maintained that momentum right up to the closing bell. Venerable banking giant JPMorgan Chase reversed yesterday’s performance, whipping its phaeton into overdrive to claim today’s top spot, while industry stalwart Boeing faced some headwinds that pushed its shares to the back of the pack.

Source: Yahoo! Finance.

Today’s climb was fueled by strong performances in the banking sector, as well as news that the IMF is about to boost funding to help ease the European debt crisis. We may not be in orbit yet, but I, for one, am enjoying the view.

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It was a good day for the Dow (INDEX: ^DJI  ) , which rose 0.78% to 12,578.95. But it was a great day for two of its component stocks.

Bank of America (NYSE: BAC  ) and JPMorgan Chase (NYSE: JPM  ) led the 30 Dow stocks today with gains of 4.9% and 4.7%.

Why did these two banks blast off?

Most of the good feelings can be attributed to Goldman Sachs‘ (NYSE: GS  ) earnings report today. Though the fourth-quarter earnings for the premier pure-play Wall Street bank were less than half 2010′s, they smashed analysts’ lowered guidance.

Goldman was up 6.8%, boosting not only Bank of America and JPMorgan Chase but also fellow Wall Streeters Morgan Stanley (NYSE: MS  ) (up 6.8% as well) and Citigroup (up 2.9%).

In addition to the Goldman news, the International Monetary Fund announced that it’s looking to increase its dry powder by half a trillion dollars to help countries with sovereign-debt problems (read: Europe). Good news for Europe means good news for these large American banks — both because of their direct investments and because of the possible indirect effects from the interdependency of credit markets.

Meanwhile, Bank of America and Morgan Stanley are set to complete the big-bank earnings season by reporting at 7:00 a.m. tomorrow. As with every earnings report, a lot will depend on expectations (rather than the absolute results). Goldman’s huge bump today is testament to that.

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The Dow (INDEX: ^DJI  ) rose slightly this week, closing up 0.5% for the week (12,422.06).

The S&P 500 (INDEX: ^GSPC  ) and the Nasdaq followed suit, rising 0.9% and 1.4%, respectively.

Despite the up week for the market, the latter part of the week held some bad news for Europe and for banking. Most significantly for Europe, ratings agency Standard & Poor’s downgraded France from its vaunted AAA perch. In banking, JPMorgan Chase‘s earnings weren’t stellar and Bank of America (NYSE: BAC  ) told regulators it would be willing to scale down in parts of the country if its situation deteriorates. Honestly, neither piece of news should be that shocking. Wall Street activities (the ones that were weak for JPMorgan) have been affected by Europe and are coming off heady times for trading. And all B of A is saying is that they’ll take the steps any reasonable operator would. It’s already been selling off non-core assets to get leaner and meaner. (Read more.)

All that said, JPMorgan was still up for the week with a 1.6% gain. Meanwhile, B of A was one of the week’s three biggest winners.

You’ll also notice that each of these three is up pretty big for the year. In fact, they’re the three biggest winners in the Dow so far.

Alcoa and Bank of America are coming off a miserable 2011 that saw their shares fall by about half (a little less for Alcoa, a little more for B of A). Meanwhile, Caterpillar was only down about three percent.

All three are especially sensitive to macroeconomic hopes and fears. And for whatever reason, sentiments have been more favorable to start the year.

If you’re a shareholder in Caterpillar, Alcoa, or B of A, enjoy these short-term gains. But let’s all remember to keep focused on the long term. If you’re looking for three vetted stocks with good future prospects, check out our brand new free report: “3 American Companies Set to Dominate the World.” Get instant access.

The Dow Jones Industrial Average (INDEX: ^DJI  ) slipped 0.10% today, but that didn’t stop these three stocks from surging:

Why, you ask, did shares of these three companies take off?

After a string of positive economic news in recent weeks, investors are placing their bets on the stocks that could outperform the most strongly should the economy pick up in 2012. Cyclical sectors outperformed the market, with materials, financials, and transportation coming out on top.

Banking stocks like BofA, JPMorgan Chase, and Citigroup (NYSE: C  ) — a non-Dow component whose shares rose 4.2% today — are hugely sensitive to economic conditions. Credit quality, demand for credit, and trading results all rely on economic strength. Leverage only increases the importance of these factors.

Similarly, aluminum demand and pricing depends heavily on economic growth. This week, Alcoa reported that it expects global demand for the metal to increase 7% in 2012.

Another issue that sets these names apart is that they are among the cheapest stocks in the Dow. All three got torched by more than 20% last year. Alcoa trades for 10 times earnings, while BofA and JPMorgan Chase trade for 0.5 and 1.1 times tangible book value, respectively. The average Dow stock trades closer to 15 times earnings.

Bank of America, Alcoa, and JPMorgan Chase all beat the market today. But if you’re interested in one stock that our chief investment officer picked to crush the market in 2012, check out our brand-new report, “The Motley Fool’s Top Stock for 2012.” It highlights a company that is revolutionizing commerce in Latin America. For a limited time, you can get instant access to the name of this company for free.