Stocks spiraled downward yesterday on lower than expected sales forecasts from key companies and fears the Federal Reserve would soon start scaling back its $85 billion bond-buying program, but experts said the one-day drop in the markets wasn't a cause for concern.
The Dow Jones Industrial Average dropped 225.47 points, or 1.5 percent, to 15,112.19 while the Standard & Poor's 500 index dropped 24.07 points, or 1.4 percent, to 1,661.32. It was the Dow's worst day in nearly two months.
"This is exactly what should be happening," said Christine Armstrong, senior vice president at Morgan Stanley. "This is a healthy, regular thing. It's not a crisis, it's not an emergency. When you look at what's going on, it's good, it's healthy."
The slump in the stock markets were in part a reaction to subpar earnings reports from two giant companies: Wal-Mart and Cisco Systems.
The world's biggest retailer cut its estimates for annual sales and profits, citing shoppers who are spending less.
And Cisco Systems late Tuesday released a revenue forecast that was weaker than expected and announced plans to cut 5 percent of its workforce, about 4,000 employees, as sales slow. The computing company said it plans to focus on research and development. It was unclear if any of the three Cisco locations in Massachusetts, which have research and development divisions, would be affected by the layoffs. The Massachusetts Executive Office of Labor and Workforce Development had not received a notification from Cisco, which is required for significant numbers of layoffs.
The government said yesterday that the number of Americans applying for unemployment benefits dropped to 320,000 last week. Combined with other positive economic news recently, investors were concerned the central bank soon would end its stimulus program supporting the economy.
"We are having a taper tantrum," Armstrong said, referring to the Fed's strategy to slow the bond purchases that have been credited with keeping interest rates down.
"Taper fears are probably front and center," Jim Russell, senior equity strategist for U.S. Bank Wealth Management, told Bloomberg.
Armstrong said the dip yesterday and the inevitable tapering is part of the recovery process.
"This is all part of this economic improvement."
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