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By TIM PARADIS, AP Business Writer Tim Paradis, Ap Business Writer Thu May 6,
11:28 pm ET
NEW YORK A computerized selloff possibly caused by a simple typographical
error triggered one of the most turbulent days in Wall Street history Thursday
and sent the Dow Jones industrials to a loss of almost 1,000 points, nearly a
tenth of their value, in less than half an hour. It was the biggest drop ever
during a trading day.
The Dow recovered two-thirds of the loss before the closing bell, but that was
still the biggest point loss since February of last year. The lightning-fast
plummet temporarily knocked normally stable stocks such as Procter & Gamble to
a tiny fraction of their former value and sent chills down investors' spines.
"Today ... caused me to fall out of my chair at one point. It felt like we lost
control," said Jack Ablin, chief investment officer at Harris Private Bank in
Chicago.
No one was sure what happened, other than automated orders were activated by
erroneous trades. One possibilility being investigated was that a trader
accidentally placed an order to sell $16 billion, instead of $16 million, worth
of futures, and that was enough to trigger sell orders across the market.
No one was taking blame, either. The New York Stock Exchange said there was no
problem with the Big Board's systems, and all the markets were on a conference
call with the Securities and Exchange Commission.
Nasdaq issued a statement two hours after the market closed saying it was
canceling trades that were executed between 2:40 p.m. and 3 p.m. that it called
clearly erroneous. It did not, however, mention a cause of the plunge.
The NYSE also said it would cancel some trades on its electronic platform.
There were reports that the sudden drop was caused by a trader who mistyped an
order to sell a large block of stock. The drop in that stock's price was enough
to trigger "sell" orders across the market.
The SEC issued a statement saying regulators are reviewing what happened and
"working with the exchanges to take appropriate steps to protect investors."
Whatever started the selloff, automated computer trading intensified the
losses. The selling only led to more selling as prices plummeted and traders
tried to limit their losses.
"I think the machines just took over. There's not a lot of human interaction,"
said Charlie Smith, chief investment officer at Fort Pitt Capital Group. "We've
known that automated trading can run away from you, and I think that's what we
saw happen today."
The market was already wobbly because of fears that Greece's debt crisis will
undermine the economic recovery. Traders watched television coverage of
protests in the streets of Athens, and the Dow was down 200 when the selloff
began less than two hours before the closing bell.
Around 2:40 p.m. EDT, the Dow was at 10,460, a loss of 400 points.
It then tumbled 600 points in seven minutes to its low of the day of 9,869, a
drop of 9.2 percent.
On the floor of the New York Stock Exchange, stone-faced traders huddled around
electronic boards and televisions, silently watching and waiting. Traders'
screens were flashing numbers non-stop, with losses shown in solid blocks of
red numbers.
Then the market bounced back, about as quickly as it fell. By 3:09 p.m., the
Dow had regained 700 points. It then fluctuated sharply until the close. The
trading day ended with the Dow down 347.80, or 3.2 percent, at 10,520.
The Dow has lost 631 points, or 5.7 percent, since Tuesday amid worries about
Greece. That is the largest three-day percentage drop since March 2009, when
the stock market was nearing its bottom following the financial meltdown.
At its lowest Thursday, the Dow was down 998.50 points in its largest point
drop ever, eclipsing the 780.87 lost during the course of trading on Oct. 15,
2008, during the height of the financial crisis. The Dow closed that day down
733.08, the biggest closing loss it has ever suffered.
The impact of Thursday's gyrations on some stocks was breathtaking, if brief.
Stock in the consulting firm Accenture fell to 4 cents after closing at $42.17
on Wednesday. It recovered to close at $41.09, down just over $1.
Procter & Gamble, generally a stable stock, dropped as much as $23, almost 37
percent, and rallied to close down only $1.41.
Many professional investors and traders use computer program trading to buy and
sell orders for large blocks of stocks. The programs use mathematical models
that are designed to give a trader the best possible price on shares.
The programs are often set up in advance and allow computers to react instantly
to moves in the market. When a stock index drops by a big amount, for example,
computers can unleash a torrent of sell orders across the market. They move so
fast that prices, and in turn indexes, can plunge at the fast pace seen
Thursday.
Even if there were technical issues, concerns about the world economy are
running high.
The stock market has had periodic bouts of anxiety about the European economies
during the past few months. They have intensified over the past week even as
Greece appeared to be moving closer to getting a bailout package from some of
its neighbors.
"The market is now realizing that Greece is going to go through a depression
over the next couple of years," said Peter Boockvar, equity strategist at
Miller Tabak. "Europe is a major trading partner of ours, and this threatens
the entire global growth story."
The Standard & Poor's 500 index, the index most closely watched by market pros,
fell 37.75, or 3.2 percent, to 1,128.15. The Nasdaq composite index lost 82.65,
or 3.4 percent, and closed at 2,319.64.
At the market's lows, all three indexes were showing losses for the year. The
Dow now shows a gain of 0.9 percent for 2010, while the S&P is up 1.2 percent
and the Nasdaq is up 2.2 percent.
At the close, losses were so widespread that just 173 stocks rose on the NYSE,
compared to 3,008 that fell. The major indexes were all down more than 3
percent.
Meanwhile, interest rates on Treasurys soared as traders sought the safety of
U.S. government debt. The yield on the benchmark 10-year note, which moves
opposite its price, fell to 3.4 percent from late Wednesday's 3.54 percent.
Eds: SUBS graf 13 to CORRECT timing of start of selloff to 2:40 p.m. EDT.
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