Will the Greek Tragedy have a ‘plot twist’ for the markets? by Ken Mahoney
It seems the markets have grown quite fond of breaking records lately, and this past week was certainly no exception. The Dow’s harrowing fall of over 1,000 points on Thursday was its biggest intraday point drop ever, and one of the most gut-wrenching hours in Wall Street history. Although the finger pointing is just getting started, the general gist of the problem, according to regulators, is linked to high-frequency automated trading. Nowadays, most trades (over half the Dow’s daily volume) are placed by computers and are initiated based on preset criteria. So if a stock begins to plummet, much like Proctor & Gamble did on Thursday, it triggers an avalanche of sell orders. When this happens, if there is a shortage of buyers, some computerized trading programs will offer lower and lower prices. The result can be a downward spiral that eventually sends otherwise valuable stocks plunging to just pennies in value.
Commenting on last week’s activity, The S.E.C. and the Commodity Futures Trading Commission said in a joint statement on Friday that they “are scrutinizing the extent to which disparate trading conventions and rules across various markets may have contributed to the spike in volatility”, then added, “This is inconsistent with the effective functioning of our capital markets and we will make whatever structural or other changes are needed.” Whether increased regulation will be good or bad for the markets remains to be seen, but one thing is certain: something needs to be done to prevent another fiasco like we experienced last week.
Even before Thursday’s hemorrhaging, the markets were already staggering from concerns that the European Union wasn’t doing enough to keep their most debt-laden countries from defaulting. In recent days, the turmoil pushed the Euro to new 14-month lows against the dollar, pushed the price of crude oil down 13%, and sent treasury and gold prices to 5-month highs as traders started parking their money in less risky investments. Even a series of positive economic reports, including the Labor Department’s better-than-expected jobs report announcing the addition of 290,000 new jobs – the biggest increase since March of 2006 – wasn’t enough to save the week. Finishing off the worst 5 days of May ever, the Dow fell 5.7%, the S&P dropped 6.4%, and the Nasdaq shed 8%.
On a positive note, the International Monetary Fund on Sunday approved a three-year, EUR30 billion loan to help pull Greece out of its economic quagmire. In addition, economists are calling for positive readings on the labor market, inventories, consumer sentiment, and retail sales, as well as more healthy earnings reports this week.
Key things we’ll be watching this week: Monday – Market Volatility, Ben Bernanke Speaks
Tuesday – Redbook
Wednesday – International Trade, Treasury Budget
Thursday – Jobless Claims
Friday – Retail Sales, Industrial Production, Consumer Sentiment, Business Inventories
HEADLINES:
BP officials said Saturday they've run into obstacles in deploying the containment dome lowered to the sea floor to catch leaking crude oil at a well head one mile below the surface. Chief Operating Officer Doug Suttles said hydrates, mainly crystallized methane frozen from the crushing pressure of the ocean and low temperatures, clogged up the opening at the top of the giant funnel after it landed on the sea floor one mile below the surface.
The April employment report delivered the best news on the U.S. economy in years. The April jobless rate rose to 9.9%, even as non-farm payrolls increased by a higher-than-expected 290,000.
Pakistan's Taliban militants were behind the botched May 1st Times Square bombing in New York, top administration officials said, reversing earlier U.S. claims casting doubt on such a connection. Attorney General Eric Holder told ABC News's "This Week" talk show, one of two Sunday shows on which he was scheduled to appear, that ''We've now developed evidence that shows that the Pakistani Taliban was behind the attack," according to an excerpt of the show's transcript.
The International Monetary Fund on Sunday approved a three-year, EUR30 billion loan to help pull Greece out of an economic quagmire. The unprecedented IMF loan, the largest financial commitment the institution has ever made to a single country, is part of a EUR110 billion IMF/European Union package that includes conditions requiring Athens to tighten its fiscal belt and raise taxes.
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