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Recent Forum Threads
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| Instability in the Markets: Should We Worry? |
| Written by James Chan |
| Sunday, 09 May 2010 23:38 |
 I promise I did not jinx the stock market. One day after I wrote about the return of stock market volatility, the Dow dove into freefall in one of the weirdest trading sessions in history, losing 997 points at one point before recovering two thirds of that loss to end down over 300 points. This week, all three major indices suffered huge losses, wiping out the gains for the year of 2010. What does that mean for the economy now? First of all, what happened Thursday? Apparently, an erroneous trade, made either by computer or by hand, caused a big sell off of Proctor and Gamble stock; within minutes, the normally stable stock plunged 37%. This triggered computerized algorithms to sell off huge portions of other stocks as well, resulting in an unprecedented market panic that saw shares of large, stable companies such as Accenture and 3M literally become worthless at one point. These computerized trades are of a huge concern to the stock market, as they make up half the trading volume on any given day. Regulators and Congress are now looking into restricting these computer trades. However, in the larger picture, the abysmal performance of stock markets this week cannot solely be attributed to computer algorithms. There are plenty of causes for economic uncertainty around the world. This week, it was revealed that even a $146 million bailout by the European Union and the IMF may not be enough to solve Greece’s debt crisis. Britain’s parliamentary elections resulted in a “hung parliament” where party leaders must negotiate a coalition for the first time in 36 years in order to form a working government. Add that to the most serious oil spill since the Exxon Valdez incident, a terrorist trying to blow up Times Square, and unemployment rates that stubbornly hover around 10%, and you can see why investors, consumers and businesses might be jittery. On top of all this, government stimulus measures are expiring soon, depriving the economy of one major source of productive growth. So what’s going to happen when the trading bell rings in the NYSE on Monday? It depends on news coming out from all corners of the globe. Any further bad news coming out of the US, Europe, Asia, or anywhere, and the economic mood might take a decisive turn for the bearish and plunge the US back into recession. Or, the market may have just experienced a temporary negative shock and will resume business as usual once investors calm down. Either way, there is a lot of uncertainty about what’s going to happen from here. That’s never a good thing for the markets and the economy. (Photo: Photobobil)
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Comments
That was a human error sopposedly. A trader placed a huge sale order on P&G (1,000x the intended) and people read it as a sign that someone *knew* more. One after another they started dumping stocks, and so the Dow went on the rollercoaster ride. Would it have been this bad if the world economy is better? I wish I know.
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