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S&P 500 (.INX): Why Bank of America Corp (BAC) Is Deflating Today

There’s no joy in Mudville today, despite the last-minute rescue of Cyprus’ imploding banking system. Apparently, the markets don’t see any heroes in that doomsday-aversion scenario.

Bank of America Corp (NYSE:BAC)

By late morning, both the Dow and the S&P 500 (S&P Indices:.INX) are falling, likely causing nostalgia for their recent runs. As you may expect, the banking sector is getting bruised, as well — especially Bank of America Corp (NYSE:BAC), which has already dropped by more than 1% from its opening.

Not that Bank of America Corp (NYSE:BAC) is alone in its misery. Citigroup Inc. (NYSE:C) is down by about 0.75%, and JPMorgan Chase & Co. (NYSE:JPM) has declined by more than 0.65%. This slippage is especially depressing so soon after Bank of America Corp (NYSE:BAC) and Citi performed so well on the Federal Reserve’s recent stress tests — better than JPMorgan, in fact, which has been instructed to rejigger its originally submitted capital plan.

Cyprus deal: A real downer
Taking a closer look at the Cyprus bailout may shed some light on the market jitters that are plaguing the big banks today. While the much-needed $13 billion in funding has been secured, the cost will be passed on directly to depositors with accounts topping $100,000. How much will these account holders be expected to chip in? Perhaps as much as 40%.

If that’s not scary enough for you, the two largest banks on the island will be merged, and some analysts predict a decline in gross domestic product of up to 25%. But, more upsetting still is the panicked realization that this may be the new reality for troubled economies and their outsized banks. And that’s enough to send any too-big-to-fail bank — and its stock — into a tailspin.

Trading is heavy in Bank of America Corp (NYSE:BAC) today, as well as Citi and JPMorgan, and the tide could turn as the Cyprus news sinks in and panic subsides. For the biggest banks, this week may very well be a tough one, through no fault of their own.

This situation points out, once again, just how volatile the market can be. As Foolish, long-term investors, however, we recognize the need to keep the one-day jumps and jives of a stock in perspective. Even stocks have good days and bad days, so it’s important to realize that sometimes they’re not portents of dire news, but merely squiggles that we can safely ignore.

Bank of America Corp (NYSE:BAC) has come a long way over the past year, and today’s hiccup will likely pass. However, with significant challenges still ahead, it’s critical to have a solid understanding of this megabank before adding it to your portfolio. In The Motley Fool’s premium research report on B of A, analysts Anand Chokkavelu, CFA, and Matt Koppenheffer, Financials bureau chief, lift the veil on the bank’s operations, including detailing three reasons to buy and three reasons to sell. Click here now to claim your copy.

The article Why Bank of America Is Deflating Today originally appeared on Fool.com and is written by Amanda Alix.

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool owns shares of Bank of America, Citigroup, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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