A tweet from the Associated Press (AP) saying President Barack Obama had been injured in an explosion caused a panic on Tuesday afternoon. The main US stock indices immediately slumped by 1%, losing $200bn, and gold jumped by 0.4%.
Three minutes later, however, it emerged that the tweet was bogus: the AP Twitter account had been hacked. The market movements promptly reversed.
What the commentators said
Twitter has become “the latest news wire of Wall Street”, says Jack Ablin of BMO Private Bank. But investors need to remember that it is also “a social media site and an unfiltered news source”. This episode has also demonstrated that, in a crisis, markets still move in virtual lockstep, said James Mackintosh in the FT.
Brazil’s Bovespa index slid by 0.5% as the US markets tumbled, and currencies and US Treasuries reacted too. And “the knee-jerk market reaction has not changed since 2007”. The yen, gold and the dollar “are still the places to run to in a crisis”.
It’s not just social media that’s making dubious information more consequential than in the past. In recent years, short-termist, computerised trading has become ever more widespread, with algorithms capable of reading news feeds and automatically selling in microseconds.
A programme reading a feed and reacting to a term such as ‘blowing up’ can also read one saying an account was ‘hacked’, noted Eric Pritchett of Potamus Trading. So the rebound was as rapid as the slump.
The ascendancy of artificial intelligence untempered by human judgement, and the resulting volatility, is a worrying development for small investors. As Dennis Dick of Bright Trading put it, one shudders to think what a 9/11 event might do to today’s markets.