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Was Stock Market selloff triggered by computer algorithms similar to 1987 Black Monday crash?


The U.S. stock market slid 8.5 percent yesterday from its record high in early January. At one point Monday the market dropped more than 1,600 points. The causes for the market plunge range from creeping signs of higher inflation and interest rates to overvaluation and wage increases.

There’s also the theory of computer algorithms triggered the selloff.

‘You know it will be awhile before we know who the real perpetrators of this selloff.”

Mitch Stapley is Chief Investment Officer with ClearArc Capital. He tells us there are risk parity funds managed according to computer algorithms. Those parity funds have portfolio insurance embedded in them and something happened to them that hasn’t happened since the Black Monday crash of 1987.

“Getting a little technical here the S&P 500 broke through its 50 day moving average triggering sales orders on the S&P from these risk parody funds. At the same time they sell the stocks they buy what are called the VIX contract, the Volatility Contract, to try to protect the portfolio because when stocks go down volatility goes up so that’s the idea of how you hedge your risk. Get rid of what’s going down in value and then, add volatility you capture the upside of that. And what you saw was you broke through that 50 day moving average triggering the computers sells the stocks, buys at the VIX market, it took maybe 25-30 minutes for it to wash its way out of the market. We had the market down I think almost 1,600 points at one time then bounced back pretty sharply came back and really recovered at least half that loss and then sold off kind of slow in the afternoon.”

Stapley sees this as the stock market having a bad day. Overall, the economy is on solid footing.

Patrick Center, WGVU News.

Patrick joined WGVU Public Media in December, 2008 after eight years of investigative reporting at Grand Rapids' WOOD-TV8 and three years at WYTV News Channel 33 in Youngstown, Ohio. As News and Public Affairs Director, Patrick manages our daily radio news operation and public interest television programming. An award-winning reporter, Patrick has won multiple Michigan Associated Press Best Reporter/Anchor awards and is a three-time Academy of Television Arts & Sciences EMMY Award winner with 14 nominations.