Skip to main content

Bear Market

Algorithms led to the fastest bear market in stock market history

Written by

Beth Kindig

Founder, CEO and Lead Technology Analyst

Published: April 1, 2020

Last Updated: April 1, 2020

Last week, I wrote about how algorithms led to the fastest bear market in history. I explained that what’s driving the speed and severity of the bear market is the escalation of algorithmic trading, which is more prevalent than it was during the Great Recession in 2008.

March 2020 holds the record for how quickly stock prices dropped into a bear market — only 16 days after the S&P 500 Index hit its last closing high Feb. 19. The second-fastest bear market was the notorious 1929 crash that set off the Great Depression, followed by the elevator drop of 1987’s Black Monday.

Americans invested in stocks through 401(k)s and other retirement accounts may be unaware that they are part of a small minority of investors who are in it for the long run. Guy De Blonay, a fund manager at Jupiter Asset Management, said 80% of the stock market was controlled by machines during the selloff in 2018’s fourth quarter. In 2017, analysts at J.P. Morgan said “fundamental discretionary traders” accounted for only 10% of stock trading volume.

The “flash crash” on May 6, 2010, caused the Dow Jones Industrial Average DJIA, -4.44% to drop 998.5 points (about 9%) within minutes, only to recover a large part of the decline later in the day.

Beth Kindig, founder and lead tech analyst of I/O Fund

Get Our Free Weekly Stock Newsletter

Get weekly stock insights, market analysis, and technology updates straight to your inbox.

  • Weekly stock insights
  • Market analysis
  • Technology updates

According to the Commodity Futures Trading Commission (CFTC), high-frequency trading “did not cause the Flash Crash, but contributed to it by demanding immediacy ahead of other market participants.”

Flash moves of nearly 1,000 points in either direction are now the new normal, with 14 occurring in the past 30 days. Four of those intraday moves were more than 9%. Trading curbs, known as circuit breakers, were hit four times this month.

Furthermore, according to Wells Fargo, robots will replace 200,000 banking jobs over the next 10 years. And Citigroup C, has formed a lab to cross-train traders and developers for machine learning and artificial intelligence.

Perhaps we will get a coronavirus vaccine or antiviral tomorrow, and business will go on as usual. Or, the opposite could happen, and things will get worse. One thing is certain: Until there is regulation, the machines will profit either way.

Read the full article on MarketWatch here.

About the author

Beth Kindig

Beth Kindig

Profile

Beth Kindig is the Founder, CEO and Lead Technology Analyst at I/O Fund, with more than 15 years of experience covering private and public technology companies. Known for her early Nvidia research beginning in 2018 and bold, high-conviction calls on emerging technology trends, Beth also manages I/O Fund's audited technology portfolio, which has returned 326% since May 2020, or 29.2% annualized. She is a regular guest on Fox Business and Bloomberg and has appeared on Real Vision, CNBC, Yahoo Finance, BBC, MarketWatch, Forbes, and more.