News Column

Social Media Adds Risk to Stock Market

April 24, 2013
stock market trading floor

A bogus 60-character tweet Tuesday with terror overtones on a news organization's Twitter site caused a nearly 150-point roller-coaster ride in a four-minute span on the Dow Jones industrial average.

The violent and instantaneous market reaction sent a message to investors that social-media tools aren't just for talkative teens, but also wield immense power that can move jittery, computer-driven markets on a whim.

Information is the lifeblood of Wall Street. Twitter is a new leader in the real-time dissemination of news. Wall Street pros track Twitter like they used to watch the stock ticker back in the day. They also program computers to seek out key words, such as "bombings," in old-media stories and social media to get a trading edge. Tuesday, Twitter emerged as the go-to place for market-moving news. The trouble is, the story about a bombing at the White House that injured the president on the Associated Press' Twitter site was bogus.

Bogus or not, it showed the power of Twitter to move markets in 140 characters or less, and how difficult it is for investors to protect themselves. The first thing Jeffrey Kleintop, a market strategist at LPL Financial, did when he saw stocks plunge around 1 p.m. ET was check Twitter.

"It exposed the weakness in the fabric of the market," Kleintop says. "If something is happening it's going to get there first. And as implausible as the tweet seemed, you still had traders and investors reacting to the outside chance it was true."

Source: Copyright USA TODAY 2013

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