I love days when the stock market is up. It generally means that something good is happening in the world, and that people are making money. Today was one of those days; the Dow Jones Industrial Average, one of the three main American indexes used to judge the health of the stock market, was up about 1% this morning. Then, a Twitter message sent to millions of users caused what is known as a flash-crash as people around the world saw what they thought may have been one of the most shocking news stories in a decade.
The Twitter message, sent by the official AP News Twitter account, claimed that there had been explosions at the White House and that President Obama had been injured. In the wake of the Boston Marathon bombings and the foiled Canadian train bombings, this news hit the net hard.
Much like after the Boston Marathon bombings, the stock markets plummeted within minutes of the tweet being published – except it was much, much worse. A daily gain of 1% turned into a loss of 0.1%, a characteristic “flash-crash” that happens in a matter of moments. Fortunately, the tweet turned out to be the work of a hacker who had decided to play a little joke on HUMANITY. The account was quickly locked-down and stocks rebounded as quickly as they had fallen.
So, why would an announcement like this cause such a sudden crash? To answer this, you must take a look at how and why investors trade stocks. The most basic principle of investing is buy low, sell high; that is, invest in something that you think is valued higher than it is priced, or has the potential to be worth more in the future, and sell it down the road. Most investments largely are dependent on the strength of the economy, which is why economic reports can be just as important as an individual company’s profitability report.
If the White House had truly been attacked and the president was injured, America would have been shaken to its core. People would no longer feel safe, and uncertainty would dominate most every aspect of everyday life, much as it did after the 9/11 attacks. High levels of uncertainty and fear are bad for an investor; they mean that people are less likely to take risks with their money. Less risk means less spending and more saving, which in turn hurts corporations who are dependent on the cash of consumers. Ultimately, investors decide that their money is safer in less risky investments than stocks, and the market crashes.
The most scary part: this was all caused by a tweet. On friggin’ Twitter. The information age will be the end of us.