All in One Day

The following post is courtesy of Ryan, my good friend and fellow market-watcher. We regularly discuss the stock market. Below he provides his unique insights on today's (yesterday's) market action. So, without further ado...

I've been in banking for 7 years. I spent the first 4 years picking stocks for mutual funds, and worked on a trade desk the first 2 of those years. Those were really fun days in 2001 and 2002. Amongst other things, I witnessed the dot-com bubble burst, the first surprise rate cut by the Fed (a non-meeting 50bps cut), and Sept 11 - all from a unique perspective.

The last 3 years I've worked on the mortgage side, with the last year and half with Josh in capital markets. I have continued to follow the stock market the entire time. What is so amazing about today is that I can't remember a day quite like it. I remember many days when the market opened high, stayed high all day, and then gave back everything in the last hour... but that's nothing like today.

To put it into perspective (I'm going to use the Wilshire 5000 to represent the total market, though I'm sure you can pick any index and get a similar story):

Open: 14,923.64
9:15 AM: 15,256.52
3:15 PM: 14,820.01
3:45 PM: 14,999.82
Close: 14,994.54

The market deflated like a tire with a slow leak between 9:15 and 3:15. I can't remember such a slow, steady, uneventful decline after a strong opening during one trading day. It was really amazing to watch.

For those keeping count, the first 15 minutes returned 2.23%, or approx. 0.15% a minute. For the next 5 hours of trading, the market gradually worked its way to a -0.69% return on the day (the market's low point). The amazing thing is that anybody who bought the market at 9:15 AM had lost 2.86% in 5 hours (or -0.0095% a minute). So, they were giving away 1 minute of gains from the morning's rally every 15 minutes and 30 seconds that passed after that peak.

But the market wasn't done; then it rallied for another gain of 1.21% at the peak around 3:45 PM. That's a gain of of 0.04% a minute. The VIX showed this as the period with the greatest amount of volatility. The market finally closed with a gain 0.47% on the day.

To summarize: you have a gain of 2.23%, loss of 2.86%, gain of 1.21%... IN ONE DAY!!! If you told me these were market returns, I would tell you that was 3 separate days of activity. But nope, it happened in one day.

Today's market behavior underscores investors' ignorance of the depth and magnitude of the credit crunch. Five of the largest central banks were effectively forced to work together, and that's something to cheer about? Ironically, not long after the central banks' announcement, Wachovia and Bank Of America both issued additional warnings on their exposure. Its like the market was cheering "Yeah, they're going to get us out this mess," and then screaming "OH NO!!! THE MESS!!!".

As I write this, the Nikkei is down 1.51% (its lunch time over there right now). I guess they don't think much of the worlds' central banks' coordinated efforts either.