Why does investor panic suddenly take hold? Here, the fourth installment of a new Fortune series on how things spread.
Twitter, the social media company that uses a bird for its corporate logo, was the canary in the coal mine.
In early February, on a single day of trading, Twitter’s stock fell 24%, to $50 from $64. The impetus, such as it was, was that ad sales were not increasing as fast as expected. The rest of the market shrugged it off. The same day the Dow Jones industrial average rose 188 to a new high.
A little more than a month later, technology stocks were in free fall, tumbling faster with every whiff of bad news. Facebook shares, which had zoomed up 30% in late January and February, fell 20% in March and early April. Netflix’s shares lost $100.
And it wasn’t just technology stocks that were tanking. Electric car company Tesla’s shares fell as well. As did many biotechs.
What had changed? If anything, the economy seemed to have improved.
On April 10, the technology heavy Nasdaq Composite index lost 129 points, it’s worst single day drop in more than two and a half years—a swoon that sent the index below 4,000 for the first time in months. Many were saying this was just the beginning of a much larger selloff.
More here – Fortune
I have to admit I have always found the search for why to be somewhat fruitless and in the end ultimately meaningless. It is as if the understanding gives us control when in actual fact we have none. I am currently reading Business Adventures which despite being over 40 years old is an excellent series of anecdotes and stories about the vagaries of business. The first piece is called The Fluctuation and is a reprint of an article by Brooks on the gyrations in the Dow in 1962. Somewhat insightfully Brooks points out that markets do what markets do and any explanation we come up with is little more than a post-hoc analysis.