Today the US stock market indices (Dow Jones, S&P 500 & Nasdaq) continued their slide from Friday. Apparently some fund managers were selling stocks as a response to climbing interest rates on the bond market. I think this is an overreaction because rising interest rates are a response to a stronger growing economy which is raising company earnings. But anyway, after 2 pm (14:00) the selling intensified and the descend accelerated. Shortly after 3 pm (15:00) the stock market suffered a flash crash and the Dow Jones dropped suddenly more than 1,000 points, compared to Friday´s close an intraday trading loss of almost 1,600 points - before paring some of the losses.
It seems that the slow slide animated many fund managers - and others - to take profits, apparently this encouraged hedge funds and other short sellers to amplify their bets against the stock market. So the slide accelerated, causing more selling - a typical herding behavior. Falling stock prices also triggered stop-loss-orders. Many professionals set these sell orders to prevent further losses. Apparently short around 3pm all these factors came together and triggered a sudden implosion on the stock market.
Crashes are a mass market phenomena caused by herding behavior. A crash is a special type of a stampede. Stampedes are a violent form of herding behavior, the members of a group suddenly behave all in the same way. It is known that hedge funds behave as a herd, they buy what others buy and they sell what others sell, so they are amplifying their behavior.
Today`s stock market drop erased all the gains the stock market had accumulated since begin of the year. I think that the previous gains were justified because the global economy is gaining strength and the US tax cuts are hiking company earnings. I believe that today´s crash will soon be forgotten and the rally will continue.
No comments:
Post a Comment