How Irrationality Has Sparked the Dow Jones Industrial Average (.DJI)’s Triple-Digit Plunge

Down go the markets on renewed fears over an end to quantitative easing. The Dow Jones Industrial Average (INDEXDJX:.DJI) has fallen sharply, diving 120 points, or 0.78%, as of 2:25 p.m. EDT. Most stocks are in the red, but today’s dip is a reminder that easing has to end sometime — although Wall Street has yet to accept that truth. Here are the stories you need to know about on the Dow Jones Industrial Average (INDEXDJX:.DJI)’s down day.

Volatility takes the day
The CBOE Volatility Index, or the market’s “fear gauge,” has shot up 5.4% today as part of a nearly 27% run-up over the past month. While Federal Reserve chairman Ben Bernanke has warned that slowing quantitative easing could slow down the economy’s recovery, investors shouldn’t panic over a draw-down of bond-buying. The Fed can’t keep up stimulus forever, and while easing has helped some sectors of the economy regain their footing, eventually “QE infinity” will have to come to end. Prepare for more volatility ahead as Wall Street comes to grips with that eventuality, but don’t panic and divert from long-term goals. The central bank won’t jerk stimulus out from under the feet of the economy, but rather taper it off over time. That’s nothing to fear.

Those knee-jerk sentiments from Wall Street have sent The Home Depot, Inc. (NYSE:HD) shares plummeting 2.6% today. No doubt stimulus has played a part in housing’s rebound from its recession lows, but The Home Depot, Inc. (NYSE:HD) has performed well for investors lately. The company’s standout first-quarter earnings and optimistic outlook for full-year profit are good signs for this stock’s future, and so long as housing continues to tick up, there’s no reason to doubt The Home Depot, Inc. (NYSE:HD) now.

Fortunately, a few Dow Jones Industrial Average (INDEXDJX:.DJI) members are beating the pack today, and Merck & Co., Inc. (NYSE:MRK) leads the index with a 2.9% gain.