This post by Jill Schlesinger originally appeared on CBS' MoneyWatch.com.
It's starting to feel like 2008 all over again-stock markets swinging 3 or 4 percent on a given day, nervous investors fearful of opening 401 (k) statements and people talking about esoteric instruments like credit default swaps again. I discussed the stock market plunge with CBS3 this morning.
There were two issues that wafted across the ocean this week that shook up investors:
- Concern that the Greek debt crisis will choke off European growth; stalling the global economic, which would put a crimp on corporate earnings and drag down stock prices.
- Some viewed the move by German financial regulators to ban certain types of short selling as a sign that European unity was fraying. The argument is that if the Germans could act unilaterally on this issue, others could act to block bailout efforts.
Or, as my dad would say, "there were more sellers than buyers!"
Yesterday brought stocks into correction territory, which is defined as a 10% decline from the recent closing peak. The S&P 500 is now down nearly 12% from its high on April 23rd and the Dow is down 10.1% from its April 26th high. This is the first correction since stocks bottomed out at 12-year lows last March.
In retrospect, the May 6th "Flash Crash" doesn't seem so crazy after all. Investors were already on edge about European debt and there were plenty of stop loss orders on the books. Sure, the day itself exaggerated the move, but consider this: the S&P 500 closed yesterday at 1071 and the intra-day low from the Flash Crash was 1065. We got to about the same place, but over a more protracted period.
Jill Schlesinger is the Editor-at-Large for CBS MoneyWatch.com. Prior to the launch of MoneyWatch, she was the Chief Investment Officer for an independent investment advisory firm. In her infancy, she was an options trader on the Commodities Exchange of New York.