With Nasdaq's three-hour outage last month still fresh in many investors's minds another milder outage hit this week, and Wall Street is bracing for more possible market disruptions with the arrival of hurricane season. Last year's Superstorm Sandy led to the longest U.S. weather-related stock market shutdown since 1888.
It's the latest in a series of worrying breakdowns in the market's underlying infrastructure. "Flash" events – those wild swings or shutdowns spurred by a combination of volatile algorithmic trades and old-fashioned herd mentality – have rekindled fears of the market crash of 2008 and other financial calamities. But most of the one-day disruptions, either from weather or computers, end up having little lasting impact. The biggest danger for investors is to overreact to the scary headlines.
The latest NASDAQ OMX, which operates the Nasdaq exchanges, says there was "a six-minute outage" involving a data feed failure that was "promptly resolved." Such issues come at an inopportune time for the exchanges as the head of the Securities and Exchange Commission, Mary Jo White, has summoned stock exchange leaders to Washington next week to explain such outages, which she calls "serious." Keeping exchanges running, she says, is "critically important to the health of our financial system."
It's big news on Wall Street, to be sure, and professional traders who participate in the market are watching closely. But do average investors need to worry?
"Unfortunately, average investors who flip on the TV and hear that the Nasdaq is closing for three hours often freak out," says David Edwards, president of Heron Financial Group. "Some bail out of the market, and the problem is that if they do that, they bail out on their retirement, too."