Dow takes largest dive in history

    The Dow Jones Industrial Average experienced the largest drop in the index?s history Thursday afternoon when it plummeted nearly 1,000 points in less than half an hour, according to the Associated Press. The Dow recovered to finish the day but was still 347 points lower than where it had begun the day.

    Edward Jones Investment Advisor David Bruns, who has an office in Washington, said the large drop was caused by a combination of factors. He said that Greece has a debt crisis that may cause problems for the rest of Europe and elsewhere. On Wednesday, riots erupted and multiple buildings were set ablaze in Athens after Greek lawmakers agreed to cut public services. The Greek government agreed to the cuts as a precondition for receiving bailout loans from the International Monetary Fund and other European governments. Bruns said that investors in the United States saw video images of the riots and that this affected their investment decisions.

    The other issue that magnified the drop that Bruns mentioned was the fact that investors use computers that are programmed to sell stocks once they drop to a particular price. The purpose of such programs is to limit a trader?s losses when he can?t manage all of his stocks on his own. Bruns said that large ?institutional traders? are the ones who use automated-computer trading the most.

    ?You can now program a computer to sell stocks if the market goes down 7 percent, and to sell a little more if it goes down 10 percent,? said Bruns. ?What ended up happening was that the computers made sales that the traders didn?t want.?

    Bruns said that the government in Greece is ?owning up to its responsibility,? but also said that the protests are understandable.

    ?If the U.S. cut Social Security 40 percent like Greece did, Americans would riot, too,? said Bruns.

    The stock exchange market NASDAQ announced that it is canceling trades that occurred in a 20-minute window Thursday afternoon because it believed the trades were erroneous, according to the Associated Press.

    Bruns said that it is important for people not to read too much into the Dow?s precipitous decline.

    ?Look at the big picture. Markets are up 70 percent from a year ago, and we have not had a 10 percent correction in that time,? said Bruns. ?We usually have three 10 percent corrections per year.?

For the full story, see the May 7 edition of The Washington Evening Journal