Market confidence has been dwindling since the ‘flash crash,’ but a new report shows the recent Twitter fiasco that sent markets on a free fall last month had relatively little impact on participants’ outlook.
The TABB Group released a survey on the ‘hash crash’ of April 25, when shares dropped as result of a false post by Associated Press’ hacked Twitter account, claiming the White House had been bombed and US president Barack Obama was injured.
The Dow Jones Industrial Average slipped 145 points, or 1%, shortly after the tweet, but the market rebounded four minutes later. The ‘hash crash’ was short-lived compared to the flash crash of May 2010, which saw shares plunge during a 20-minute period.
The TABB report found the majority of market participants were unmoved by the ‘hash crash’: 29% of buy-side respondents saying their market structure confidence had dropped while 6% said it had risen.
“Some could argue that, given the nature of the tweet, the question is not why the market dropped, but why it dropped so little. The reason for the drop was not that the President had been injured or that there were explosions at the White House; it was because people didn’t know what was happening,” the report said.
“Traders were able to quickly assume the report was false. Orderly price discovery worked its way as the market went down, and as it subsequently went back up. From a market structure perspective, everything worked as it should have, given the circumstances.”
Survey respondents believe the tweet was intended to manipulate the market, and US equity markets were most negatively impacted as a result.
Overall, market structure confidence has been dropping in the last three years. The report found 15% of participants had weak or very weak confidence in the market in May 2010. That number increased to 31% in June 2012 and to 34% in August 2012, while last month, when the ‘hash crash’ occurred, it reached 39%.
The report also showed the percentage of respondents that have very weak confidence in the market structure quadrupled from May 2010 to April 2013, from 3% to 12%.