Here’s Why Financial Stocks are Pulling Down the Dow and S&P

Both the Dow Jones Industrial Average (.DJI) and the the S&P 500 (.INX) are down today upon bad news in the financial sector.

The SEC‘s most recent target is Merrill Lynch, under investigation for a sale it structured for Illinois-based hedge fund Magnetar. Regulators are looking into whether Merrill inaccurately priced assets and then told buyers that Magnetar helped select the assets while betting against them themselves. The news sent shares in Bank of America (NYSE:BAC), which bought Merrill Lynch in 2008, down 2.96%.

JPMorgan (NYSE:JPM) shares are down 3.04% today after being fined $2 million by the Office of the Comptroller of the Currency (the OCC) for using high-pressure sales tactics and making false statements about a credit-protection product.

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Both Discover (NYSE:DFS) and Capital One (NYSE:COF) reported that credit-card charge-offs and delinquencies were down in May to levels not seen since before the financial crisis, with fewer customers defaulting on their credit cards. For Discover, it was the first time since February 2008 that the default rate dropped below 5%. But despite the news, both Discover and Capital One shares are down 0.65% and 1.34% respectively as Bank of America’s and JPMorgan’s news pulls down the financial sector.

Contributing to the market’s poor showing today was data showing waning manufacturing in the New York region in June, according to an Empire State manufacturing survey released today by the New York Federal Reserve. The index fell from 11.9 in May to -7.8 in June, the first time it’s been below zero since November 2010.

Also joining the banks in pushing down the markets today is the rising price of consumer goods, up 0.2% last month as the cost of food, clothing, and autos all increased, though May saw the first decline in energy prices in 11 months.

But ultimately banks and insurers were the biggest burdens on the markets, with the Financial Select Sector (NYSE:XLF) down 2.03%, and all of the top five most important banks to watch down as well, including JPMorgan, Bank of America, Citigroup (NYSE:C), Goldman Sachs (NYSE:GS), and Wells Fargo (NYSE:WFC).

The Dow Jones Industrial Average (NYSE:DIA) is down 1.49%, the S&P (NYSE:SPY) down 1.67% as of 2:19 PM EDT.