Dow has record drop but recovers

May 7, 2010 at 12:00a.m.

Staff/wire report

new York

The stock market had one of its most turbulent days in history as the Dow Jones Industrial Average dropped almost 1,000 points in less than a half-hour on fears that Greece’s debt problems could halt the global economic recovery.

The Dow’s drop, which came less than 90 minutes before the end of trading, was its largest loss ever during the course of a trading day, but it recovered to a loss of 347 at the close. All the major indexes lost more than 3 percent.

Before the drop, the Dow already was down more than 200 points as traders watched protests in the streets of Athens on TV. Protesters raged against austerity measures passed by the Greek parliament.

“It was not a good day,” said Robert Gardner, a financial adviser and CPA with Stifel Nicolaus in Canfield. “But it looks like it was not as bad as it seemed.”

Gardner said he thinks the turbulence in the market may be caused partly by uncertainty over whether Greece’s debt crisis might spread to other countries in Europe, notably Portugal and Spain.

“The stock market never likes uncertainty,” Gardner said. “Now we have this curveball coming out of Greece and possibly other parts of Europe.”

There also is concern that damage to European economies could spread to the U.S.

“We are starting to get our house in order here in the U.S., but it is a global economy,” Gardner said. “We depend on foreign economies as well.”

Gardner said the stock market may see some relief today, depending on whether “the [European Central Bank] can offer some soothing statements on how it will address and contain the issues in Greece.”

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.

Computer trading intensified the losses as programs designed to sell stocks at a specified level kicked in. Traders use those programs to try to limit their losses when the market is falling. And the selling only led to more selling as prices fell.

The selling was furious:

At 2:20 p.m., 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.

By 3:09 p.m., the Dow had regained 700 points. It then fluctuated sharply until the close.

“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.”

On the floor of the New York Stock Exchange, stone-faced traders huddled around electronic boards and televisions, silently watching and waiting.

NYSE spokesman Raymond Pellecchia said the plunge wasn’t caused by a problem with the exchange’s trading systems. The Nasdaq Stock Market said it was reviewing its trades with other trading networks.

NYSE chief operating officer Larry Leibowitz said all the major stock exchanges were having a conference call with the Securities and Exchange Commission to discuss what happened. It was not immediately known if there would be a statement issued after the call to explain the day’s events.

Nasdaq issued a statement two hours after the market closed saying it was canceling trades that were executed between 2:40 and 3 p.m. that it called clearly erroneous. It did not, however, mention a cause of the plunge.