Why does the Market tumble every time somebody somewhere sneezes?

Because traders are human beings subject to the same prejudices, gossip and herd think that the rest of us are.

High frequency trades. Computer controlled trading where a company trades shares based on a computer algorithm and may only actually hold the shares for a second or less. As long as the market is behaving in a predictable way everything is fine but if something happens that the people who wrote the program didn’t foresee (and it doesnt need to be all that exciting – something like a computer bug) then things can go wrong very quickly. Once one investor is selling all their positions other people will start doing the same even if they don’t know why the other company is trading the way they are (it’s often cheaper to just react and try and figure out what’s going on later and don’t forget most of their trades will be carried out by high frequency trading as well). Even if the market works out what’s happened and humans intervene it can take a while to repair the damage.

@Lightlyseared That’s kind of simplistic. Algos and HFTs are risk averse and prefer to hedge rather than drive the price one way or another. So when they sell futures they’re buying stock or options; they want to be delta neutral and prefer to capture the small differential.

There are a lot of factors going on in the market, and it snot just the electronic traders. The market has a herd mentality, and reacts to news or sentiment quickly, usually without fully digesting the news. That’s why the market will tank on the opening, but recover midday. or spike in the morning only to gradually sell off for the rest of the day.

And to speak to the original question, there are a lot of worries on a global scale, whenever it looks bad in Europe, people sell off in the U.S.

The markets have ceased to primarily serve their original purpose of being locations for exchange, and are now gambling dens for speculators. With global participation.

Because each bubble is built on covered-up risks, and because all the traders actually know this, many people are constantly ready to jump ship at the first whiff of problems.

Because these are generally the “best” traders, people follow their lead, selling off until selling becomes a self-perpetuating mania and the bubble bursts.

Remember that almost everyone knew at almost every point that this was going to happen, they just weren’t sure when.

That’s right, traders know when they’re paying over the odds for something, but they’ll still buy it if they think they can sell it for more tomorrow. This is how irresponsible speculation fuels market bubbles and continually damages the lot of the helpless majority.

And that’s why Thatcher and Reagan were bastards.

Uncertainty. Traders are calculating their expectations for the future, but the future expectations change all the time.

Also, stocks are largely fictional numbers, abstractions of abstractions. Why shouldn’t imagination and fears fluctuate things?