Panic selling drove the Dow down 1,000 points today, the biggest drop on record. Fortunately, it recovered 70% of the territory.
What triggered the sell-off? The European Central Bank refused to further bail out Greece, whose failing economy caused riots in Athens where protesters yesterday set fire to a bank, killing three employees. Greece's debt was downgraded to junk bond status by ratings agencies, which also junked the country's banks, the debt's owners. If the ECB lets Greece default, it could trigger defaults by other debt-laden countries like Portugal, Ireland and Spain. Investors who hold these countries' bonds will wind up with huge losses. Since many of these investors are banks, LIBOR rose - reminiscent of the bank credit crisis.
What It Means to You
There were rumors that the drop was caused by bad trades, or by a credit freeze in European banks, although those rumors were not substantiated. The euro plunged to a one year low against the dollar. A flight to safety drove gold up to $1,200 an ounce, near its all-time record, and knocked the 10-year Treasury note yield down to 3.40 percent.
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Stunned Wall Street Trader (Credit: Spencer Platt /Getty Images)
Comments
Well this is unfair
With Refusion of EcB for Greece Doesnt mean 1000 points down
If we see Yen pairs there are Gab of 200 Pip after sudden Drop ? why is it so?
Two people with directly realted to the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission said
they will examine
whether securities professionals triggered the selloff or exploited it for profit
US also never supported such a Strong dollar !
But those who trades yen
was a Happy yen Day for them
coz they made thousands
Lets wait for Happy Dollar Day
Kimberly,
I think the bad news from Europe, as bad as it was, was probably not sufficient to provoke a 1,000 point drop in a matter of minutes. We had an experience like the one mentioned some years ago. The problem was (at least according to those who investigated the occurrence) “programmed trades”. Computer models programmed to issue buy/sell orders were triggered by the bad news to dump shares. The fact that the market rebounded quickly (but not fully) is an indication that the bad news was really not bad enough to provoke panic. You can bet a lot of brokerage houses are taking a close look at their “models” and probably tossing a few programmers out the window. My contacts with clients in the USA indicate that the news in the US is relatively good. Europe of course presents a problem and slow growth is likely there for a few years. But the US economy is bouncing back nicely and in what appears to be sustainable fashion. I don’t take the stock market as seriously as do many others because I see the market as a “reactive mechanism” not a “proactive one”. It does not drive the economy, it responds to it, and even then not necessarily “appropriately”. It reflects the views of financial investors, not the producers of “stuff”. If you hold on to the shares of good, well managed companies, you will generally do well. As one investor is reported to have said long ago: “In the stock market the bulls do well and the bears do well – only the pigs do not do well.”
Best,
Jim
I saw rumors that a program trade or error had caused the 1,000 point drop, but no one owned up to it, so it seemed unsubstantiated. But, you are probably right – just goes to show that program trade will increase volatility going forward.
I agree with you that the U.S. economy is on the mend. It is a strong economy, despite all its serious flaws.
The quote I heard was “Bulls and bear get fat…pigs get slaughtered.” I like yours better – less violent images!
Kimberly
Jim Wygand;
Like your comment.