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Dow Jones Plunge Fueled by Overwhelmed Computers
cloudscout writes "The Dow Jones Industrial Average dropped over 400 points today. While there were various valid financial reasons for such a decline, some of the blame is being placed on computer systems that couldn't keep up with the abnormally high volume at the New York Stock Exchange and the resulting tremor as they switched over to a backup system."
The computer systems weren't responsible for the overall drop, but rather the rate of the drop during the few minutes of switching over to the backup computers. This queued up trades, and at the current volume of the switchover, caused a large drop when they caught up. At least that's how I understand it.
The DOW is up today. Can't you at least get the most basic facts right? The drop was yesterday.
The drop was really fueled by a number of causes. China's 9% decline the night before was the primary trigger. Sub-prime loans have been leading to trouble for a number of firms lately with the housing decline fueling those problems. The market has been in bull form for quite some time with no corrections leading to a large number of stock prices not supported by their fundamentals. The durable goods sales reports are expected to show under 3% growth when it has been up in the 4% range and this always spooks investors. Any economic indicators showing any sign of change spark massive changes on the market.
The computer problems experienced were really just a lag between the DJIA being calculated and the massive volume of trades being made. Individual stock prices were being reported correctly but the index wasn't keeping up. When the computers caught up they did it over a single minute dropping about 300 points while in reality by the time the index caught up the market had started to rebound a bit. All of the value stock buyers saw the deals becoming available when the landslide hit and started buying a bit. Kind of like today, the market is rebounding because many are looking at stocks that were overpriced yesterday and thinking they are cheap. It's not really as big of deal as the press makes it out to seem. It's not like the '87 crash where 500 points was like 20% of the market. 500 points off th dow is under 4%.
Another trigger for the sudden decline could have been the headline on The Drudge Report (linking to the New York Times article by the same headline) stated that Greespan predicted an imminent recession when his words were as they always have been and that people should be carefull because the economy has been growing for longer than the average growth cycle by about 12 months. Greenspan didn't say anything about a recession being imminent.