Stocks Pummeled on Big Bank Earnings Day - January 20, 2010

Last Updated Feb 16, 2010 1:00 PM EST

After a breakfast meeting this morning, I rolled into the office and immediately commenced my destructive habit of looking at the market. As of about 10 a.m. Mountain Standard Time, the Dow was down 177 points, and the NASDAQ down over 40 points. Ouch! Such news did not help the digestion of my breakfast any. The cause behind this drop was detailed in the Reuters story - Stocks Pummeled on Big Bank Earnings Day; Nasdaq Off 2 Percent.

According to this article, three big banks had released earnings. Bank of America (BAC) lost $5.2 billion over the past quarter, while US Bank (USB) and Wells Fargo (WFC) made $850 million and $3 billion, respectively.

The story seemed to imply that these earnings reports were the cause of my nest egg becoming smaller today. Could this be true? I'm thinking not.

How did banks do today?
It would seem reasonable that if these three banks were a major part of the bad morning in the stock market, then the three bank stocks should be down more than the market - say down by more than 2 percent.

Bank Performance
BAC - UP 1.23 percent

USB: UP 3.02 percent

WFC: DOWN 0.64 percent

So the three banks that were implied to be the cause of this bad morning actually, as a whole, are bucking the trend and are having a good day. Thus, it's safe to say that it wasn't the earnings release of the three banks.

So why is the stock market really down today?
I could give several better explanations including two that come to mind - profit taking from gains a day earlier, or a reaction to the Massachusetts's Senate election results the night before.

The bottom line, however, is that I really don't know. The stock market is a very complex mechanism and seems to do whatever it wants. Pay no attention to the short-term explanations from the media. Many don't know that they don't know why the market does what it does.

Perhaps the most important word of advice I can offer today falls under the "do as I say not as I do" category. DON'T look at the market several times a day. It's a capricious beast. Much better to ignore it instead.
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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.