U.S. stocks plunge sharply amid lackluster financial results

TradingPub Admin | August 15, 2013

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U.S. stocks plunged in value on August 15, driven lower as global market participants responded to lackluster financial results released by major companies Wal-Mart and Cisco.

In addition, investors were impacted by economic data, which increased the existing concerns that the bond purchases of the Federal Reserve will be reduced in volume, according to Bloomberg.

Sharp declines in stocks
The S&P 500 Index plunged 1.4 percent during the day to reach 1,661.34 at 4 p.m. in New York, the media outlet reported. This represented the sharpest one-session decline since June 20.

The Dow Jones Industrial Average dropped 229 points, or 1.5 percent, to reach 15,108 in afternoon trading, according to The Associated Press. The Nasdaq Composite Index also registered a sharp loss, falling 1.8 percent to 3,604.

Some thought that the market decline was a little much, and Randy Frederick, managing director of active trading and derivatives at the Schwab Center for Financial Research, told the media outlet that the sharp drop in values might be overdone.

Monetary stimulus concerns
The market expert told the news source that many anticipate that quantitative easing will be lowered in the coming months, which could motivate investors to flock to bonds for yields instead of holding dividend-paying stocks.

Bloomberg reported that the sharp drop the S&P 500 experienced on August 15 brought an end to a period of substantial volatility that lasted a month. Data compiled by the media outlet indicated that from July 11 through August 14, the index fluctuated within a tight range of 35 points.

This benchmark group of stocks has surged as much as 20 percent this year, reaching an all-time high of 1,709.67 on August 2, according to the news source. In addition to this robust performance in 2013, the index has gained more than 150 percent since reaching a recent low in 2009.

Lackluster financial results
However, after enjoying such strong performance, the S&P was affected when Wal-Mart reduced its predictions for both revenue and earnings in 2013, The Associated Press reported. In addition to lowering these forecasts, its second-quarter financial results fell short of expectations.

Global market participants were also impacted by the statements of Cisco Systems, which indicated that it had plans to eliminate approximately 4,000 of its workers, or 5 percent of its total staff, according to the news source. The company cited lackluster sales, and chief executive officer John Chambers referred to the global economic landscape as being "challenging and inconsistent."

Jim Russell, the senior equity strategist for U.S. Bank Wealth Management, noted the various concerns that affected stocks, including weak financial results, during an interview with Bloomberg. He also cited the jobless claims report, which indicated that the number of these applications plunged to its lowest since 2007.

"With weaker earnings, higher interest rates and geopolitical concerns, risk assets like stocks don't do well in that type of environment," Russell told the media outlet. "The jobless claims numbers were sufficiently strong that taper fears are probably front and center in terms of display today."

The Associated Press reported that robust economic data causing the stock market to trend lower represents a contrast to the usual scenario. Generally, such information helps to bolster the sentiment of global market participants, which then causes them to engage in risk-on trading.

The global asset markets are currently in a period where strong economic data can be detrimental, as this information frequently helps fuel concerns that QE will be tapered sooner rather than later. Such an event could have a key impact, since many believe that global asset markets are inflated right now because of such monetary stimulus.

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