Stocks Turn Downward After Dimon Testimony:
JPMorgan’s CEO testifies before the Senate Banking Committee.
Stocks fell late in the session today after Jamie Dimon gave testimony in Washington D.C. It seemed the questions from the U.S. representatives weren’t pressing and after the testimony, Dimon was seen ‘dancing a jig‘. Some political watchers are carefully going through his testimony and the most pressing statement from Dimon was his admission that the line between hedging and taking on risk is exceptionally blurred. That is the key issue – hedging can easily be done by holding reserves against each loan which has worked for years until extreme financial engineering models captivated Wall Street.
Market participants weren’t expecting the hearing to be as non confrontational as it was and after the Dimon’s testimony to the Senate Banking Committee the financials which ran up during his remarks tanked with the rest of the market as the hearing news filtered throughout the markets. This may not be the last word on JP Morgan’s trading loss that is estimated at $4 billion or more.
Later in the session, Spain was downgraded again by another ratings agency but the news seemed to be ‘baked in’ as the 3:40 headline release occurred in an already falling market. The downgrade comes after news this weekend that Spain will be obtaining $125 billion in new capital funding which shows the EU is willing to keep banks afloat.
We don’t believe sentiment about the Dimon hearings changed many views that the “Volcker Rule” is off the table and financials didn’t jump on the “all clear” signal we would have expected after the hearing but after rising significantly in the early part of the session. Some of those gains may have been premature which caused traders to take profits later.
The market is holding up to support levels we are watching and may move higher in the short run. We will continue to watch financials, tech and small caps as they move ahead of the Greek elections on a triple witching Friday. Expect more volatility.