SAN FRANCISCO (MarketWatch) -- The stock market's gyrations over the past few days look a lot like the turmoil seen in 2008 and early 2009, and no one wants to suffer that again.
Friday's 140-point loss for the Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (INDU 10,380, -139.89, -1.33%) was something of a relief after Thursday's traumatic trading. At one point on Thursday afternoon the Dow had plunged 992 points -- the biggest intraday point-drop in its history -- before ending the day down 348 points, or 3.2%. But the real and troubling mystery was why, in one brief but harrowing stretch, some popular stocks and exchange-traded funds were being priced in pennies.
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Financial advisers have long told investors to put a chunk of their portfolio in foreign stocks, and for the past few years that's been good advice. But no longer. MarketWatch's Money & Investing Editor Jonathan Burton reports.
The closing bell on Thursday brought more questions than answers about a day that Wall Street veterans hadn't seen since the October 1987 crash. What caused the upheaval? Was it the Greek crisis? A trader's monumental mistake? A computer trading glitch?
It will take time before we know. But while the market recovered on Thursday, many investors didn't. The week ended with the Dow down 5.7% and the Standard & Poor's 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,111, -17.27, -1.53%) off 6.4%, but the damage isn't confined to percentages. Investor confidence has taken yet another hit. People hadn't been doing much stock buying over the past year even as stocks soared. Now they're even less likely to take the risk.
Of course, that might be exactly the wrong move for investors, especially those with long-term goals. But honestly, if Wall Street professionals don't have a handle on stocks, how can the rest of us? These questions and answers offer some advice:
Stocks plunged on Thursday and nobody has yet figured out why. How can investors be confident that markets will function in an orderly way?
It's surprising and more than a little unnerving that the New York Stock Exchange and other established trading platforms seem to be at the mercy of the same technology that keeps pricing transparent and efficient. But computer-programmed trading is a fact of investing life, and the rapid action exacerbates the systemic, market risk that all investors shoulder. Understandably, such a new and unpredictable risk makes many investors shudder. See story on investor reaction to market's swings.
Certainly, no one minds volatility when stocks are going up. While stocks lost more ground on Friday, the good news is that trading activity was normalized. Moreover, regulators and exchanges are investigating Thursday's mishap and will try to ensure it doesn't happen again. Expect to see provisions for maintaining liquidity and ensuring a fair and orderly market as part of any financial reform legislation. See story on trading glitches prompting talk of reform.
Is this the beginning of a U.S. market meltdown like we saw in 2008 and early 2009?
Click here for complete article by Jonathan Burton.
