Specialist Frank Masiello is reflected in his screen on the floor of the New York Stock Exchange. Photo / AP
Specialist Frank Masiello is reflected in his screen on the floor of the New York Stock Exchange. Photo / AP
More than US $50 billion of market value was erased from the world's 10th biggest company. A gauge of market stress got too jammed up to function. The largest technology stocks recorded a correction -- in the space of a few seconds.
Such was the drama at the open of trading in the American equity market Monday, when waves of global selling battered stocks with almost unprecedented force. At its worst, about $1.2 trillion of market value had been erased from U.S. shares before prices levelled off and the Dow Jones Industrial Average rebounded almost 1,000 points.
At one point the Standard & Poor's 500 Index came within 34 points of setting off a marketwide circuit breaker that would've shut down trading for 15 minutes to restore order. More than 2 billion shares changed hands in the first 30 minutes, almost one-third of what usually trades in a day.
"We're in the middle of artillery barrage," Michael Ball, president and lead portfolio manager of Colorado-based Weatherstone Capital Management, which oversees $675 million, said in an interview. "Watching the first 30 minutes or so, it did start to bring flash back of the flash crash."
Fear gripped traders for half an hour as selling deepened after the biggest plunge in four years. General Electric, the 10th-largest U.S. company by market value, and JPMorgan Chase dropped as much as 21 percent, their worst intraday losses since 1987 and 2009, respectively. Stocks in the Dow Jones Industrial Average were down 11 percent on average at their lowest point.
The Nasdaq 100 Index plunged as much as 9.8 percent at the open as Apple tumbled as much as 13 percent while Google and Microsoft sank more than 7 percent.
In the options market, the Chicago Board Options Exchange Volatility Index failed to update for about 30 minutes after the open of stock trading at 9:30 a.m., data sent to Bloomberg show. Trading in the contracts from which the VIX is derived was too disjointed to calculate a value, its overseer said.
Then there were momentum stocks, winners in recent months whose success underpins an investing strategy that, through July, had posted some of its best relative returns on record. Investors access the group via the Powershares DWA Momentum Portfolio, an exchange-traded fund that saw assets balloon to more than $2 billion in August.
In a matter of seconds after the open, the security with ticker symbol PDP plunged 36 percent, to $26.59 from Friday's close of $41.36. Another one, the iShares MSCI USA Momentum Index Fund, tumbled 21 percent.
A handful of other ETFs swung wildly, among them First Trust Dow Jones Internet Index Fund, the iShares Global Healthcare ETF, the PowerShares Global Water Portfolio and the iShares Russell Mid-Cap Value ETF.
"It felt like a very technical open," said Edward "Eddie" Perkin, chief equity investment officer at Eaton Vance Corp., which oversees $311 billion. "Some volume went through at those crazy prices" and it was reminiscent of the May 2010 flash crash, in which "no one was there on the bid side of the trade." Automated trading strategies got some of the blame in the aftermath of that plunge five years ago.
There's one critical difference between today and the flash crash -- in the flash crash, there was no precipitating event, whereas today everything seemed to be very explicable.
Or maybe it was just emotions getting the better of people.
"Today looked human to me, it didn't look machine- driven," said Dave Lauer, co-founder and chief technology officer of market research firm Kor Group. "There's one critical difference between today and the flash crash -- in the flash crash, there was no precipitating event, whereas today everything seemed to be very explicable. Markets around the world were down 7 to 8 percent and the U.S markets started to follow suit."
Something went awry with XL Group's stock just after 9:30 a.m. About 20 seconds after the market opened, the $11 billion corporation's shares changed hands for $34.84. A second later, it plunged to $3.66 in a single trade, according to data compiled by Bloomberg. A total of about 122 trades priced below $6 executed in the next three minutes before the stock jumped back up to above $35.
UnitedHealth Group Inc. tumbled as much as 18 percent on Monday while Pfizer Inc. lost 15 percent.
"It really felt like everybody was just selling everything they could imagine," Mark Kepner, an equity trader at Themis Trading in Chatham, New Jersey, said by phone. "We've had calm for a long time and this felt like capitulation, people selling anything to raise cash."
