May 7th, 2010
11:58 AM ET

What the heck happened with the markets yesterday?

It’s a day after the Dow Jones industrial average sent the markets on a wild ride - dropping nearly 1,000 points in five minutes then rebounding - and we’re still not sure what happened.

Yesterday was slightly more than a run-of-the-mill bad day - and then something technical happened. We’re still unclear about what caused it. At first all eyes turned to Greece and sovereign debt issues in Europe. Then there was word a technical glitch involving Proctor and Gamble was to blame. Everyone is pointing fingers. Some say prices were listed as billions instead of millions, but nobody knows - yet.

The bottom line is: Somehow, either one stock, or a handful of stocks lost a significant amount of value within moments and that is uncharacteristic.

It’s not the first time a stock has seen its value change wildly at a rapid pace. But in recent years it has been a bit more common and that’s because of high frequency automated computer trading.

Without automated trading, such a sudden loss of 80 or 90 percent of a stock's value would be unlikely unless there was some catalyst. In non-automated trades, changes are often driven by rumors among traders about a company. In automated trading - where certain rises or falls in a stock price automatically trigger computer trades - things happen more quickly, there’s less time to digest what’s happening and traders exacerbate the problem – meaning what started as a small error or loss can grow like an avalanche.

It was a bad day on the stock market anyway because of the sovereign debt issues in other countries. But some worry that the dip could be contagious - that what's going on in Greece and, to a lesser degree, in Portugal, Spain, Italy and Ireland, could trigger a second breakdown in our economy; the proverbial "double-dip" recession. While this is unlikely, there's concern that the resulting drop in the Euro will make U.S. and other products unaffordable to Europeans, further slowing our economic recovery.

We don’t yet know what really happened Thursday. It’s likely there will be investigations and stocks, gains and losses will be adjusted. But in all likelihood Thursday was simply a bad day made worse by a technical error. Dow plunge is a wake-up call to deal with debt 296 'funked up' stocks - trades canceled

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Filed under: Finance
soundoff (4 Responses)
  1. Flores

    Put on your tinfoil hats, and go read Tom Clany's book "Debt of Honor', for a nice fictional read on what a deliberate financial crash could look like.

    May 7, 2010 at 12:47 pm | Report abuse |
  2. MXAddison

    What the heck happened? Find out who made a ton of cash yesterday selling short, and you'll have your answer.

    May 7, 2010 at 1:00 pm | Report abuse |
  3. Bob from Juneau

    Better get out now – The" masters of the universe" are at it again and this time will make the last "near collapse" seem like a joke. And if you really want to know what happened yesterday you need only to follow the money.

    May 7, 2010 at 2:31 pm | Report abuse |
  4. missing a cooler


    May 7, 2010 at 2:42 pm | Report abuse |