Stupid question: What makes the dow drop?

[FirstLight]

Is everyone selling out? is it like a bank run on the stock market?

.....should I go to the grocery store and stock up yet? shit!

[liberal N proud]

1. Just about anything

They can be so fickle and if the wind is blowing the wrong direction they might drop.

[jpgray]

2. Bad gyros

:tinfoilhat:

[Javaman]

27. Duzy to you!!!

frankly, you are probably closer to why than anyone else!

:rofl:

[TomClash]

3. Share prices of the 30 Dow companies drop

A few people are buying cheap, a few are holding and most are selling in a panic wave.

Don't go to the grocery store. It will be there in the morning.

[billyoc]

4. More sellers than buyers.

Everyone should always have a week's worth of food set aside for emergencies, but I'm not stocking up on anything special because of this. :hi:

[MercutioATC]

5. I'd go with 3-4 weeks, but you're right.

Prepare and don't panic.

[FirstLight]

11. Oka...so that whole supply & demand thing?

like in housing right now where every other house has a sign on it and nobody can buy?

But we're talking about people on wall st who actually have the $$ right? they just aren't spending it?
I guess they finally figured out the game is fixed..so nobody wants to play the roulete wheel?


My mom actually said "what are we going to do? well, we just watch it happen. It is all e big guys that are doing this, we just have to deal with the consequences."

[originalpckelly]

20. They don't want to buy for fear that the stocks will decline in value...

it's a feedback loop. As more people sell stocks and fewer people buys stocks, there is a drop in the price of stocks, causing more people to get out and not buy again.

It's only when the fear wears off and people starting thinking of a low priced market as a market on sale that they go in and buy up stocks.

[billyoc]

22. Yes, you're right. There's an extra factor, some people are selling their stocks

so they'll have cash to buy the other stocks, because they think the other stocks are going to drop in price, so they'll be able to get them cheap and make a profit later. Weird, huh? :rofl:

[walther]

6. Investor Confidence in the future is gone; but remember..

Every stock that is being dumped is being bought by somebody else, otherwise you would see a REAL crash.

Obama needs to stop talking about higher taxes.

[gravity]

7. Everyone is selling shares, no one is buying

It is not like a bank run because it won't make the market go under. It just means that the pieces of paper being traded are at a lower price.

[walther]

25. Not correct, for every stock sold today there has been a buyer.

If there were no opportunity buyers in the world markets they would go to zero.

For every stock sold there is a willing buyer looking for a good buy. Tons of good buys out there. In two years people will kick themselves for not buying today.

[HamdenRice]

32. Actually this part is not true: "there is a willing buyer"

The New York Stock Exchange uses "specialist" firms that are required to buy stock when there is no willing buyer.

These specialists usually make very significant profits during normal trading, and in exchange they take on the obligation of making a market during market turmoil.

So not all purchases are really "willing" buyers; some are contractually obligated buyers.

What made 1987 so scary was that the plunge was so big that specialists faced the prospect of going bankrupt taking on the obligation to buy when no one else would, and some walked away from their order phones. That's when the real panic and carnage set it.

[polichick]

8. Worry, pessimism, doubt, fear, etc.,

[itsrobert]

9. Fear and Panic

Lack of leadership. ie Bush and Federal Reserve

[leftofthedial]

10. people selling, selling, selling

and buyers offering less and less and less

[Venceremos]

12. stay calm

it's only down about 6 3/4 percent - pay more attention to the percent drop than the numeric points.

As a point of reference, the DOW lost 22.6% in one day on Oct. 19, 1987.

[LeftyFingerPop]

13. The Dow consists of a fixed basket of stocks.

There is overall selling pressure on these stocks. In other words, the demand for these stocks is low because of poor economic conditions. People put in "sell orders" for these stocks to get rid of them, and the price falls until someone is willing to buy them. The greater the selling pressure, the lower the price falls.

When, on average, the prices of the stocks in the Dow fall, the Dow falls.

[anigbrowl]

14. Europe has also been having a shitty week, with banks failing etc.

So some European investors are being forced to sell off assets held in the US. It's a global problem; not exactly a bank run on the stock market (where everyone pulls their money out due to a general loss of confidence) but somewhat similar.

I suggest that it will jump up and down like crazy this week.

[nadinbrzezinski]

15. In this case we have had really bad economic news, such as

higher unemployed numbers than expected, for example

A slow down in the economy

People not trusting the health of the market

Essentially the market is I loan you some money, capital... shares... in the expectation that as you grow I will share in the dividends, aka the profits

If more people are getting laid off, well they won't be able afford my baubles... hence my shares are worth less

Right now you are also having panic, since many folks cannot get the loans they need to keep operating

Yes I simplified this, and no, this is not a stupid question

[Speck Tater]

16. When there are more people trying to sell than people trying to buy.

It's basically an auction. People bid what they are willing to pay for a stock, and others who own the stock offer (ask) for the price they want to get for it. That makes the spread between bid and ask price.

When someone comes in and buys "at the market" they buy from whoever is offering (asking) the lowest price for it.

If someone comes in and sells "at the market" they sell to the highest bidder for whatever the current bid price is.

Unless you tell your broker to buy or sell at a specific price (in other words, you set your bid or ask) your broker will buy or sell "at the market" and you will buy for the lowest ask price, or sell for the highest bid price.

People in a hurry to sell will sell at the market. Those people offering to buy stock at various prices will have their orders filled quickly, and as the higher bid prices are stripped away they uncover the huge stack of lower bid offers that have been made. Each sale strips off the next higher bid price, and each sell transaction takes place at the next lower bid price.

When people are in a hurry to buy, it works the opposit e way. The lowest ask prices are bought out and the shares offered at higher ask prices are uncovered and each buy transaction takes place at the next higher ask price.

So, when sellers outnumber buyers the prices heads generally down. When buyers outnumber sellers, the price heads generally up.

[Jamastiene]

17. People are unloading their stock in droves because

they know the crooks have bankrupted everything.

So, the volume is high. That means there have been a lot of trades today, but the overall value of the DJIA is dropping like a hot potato because most of those trades are panicked sellers. They are selling off stocks in the top 30 companies listed on the Dow Jones Industrial Average.

We are screwn!!elevens11!1!

Do you need anything at the store? If so, then go. If not, don't go. What does the grocery store have to do with it, anyway? :P

[Karenina]

18. Phone calls after a round of golf

a martini lunch and a few hands of poker in a smoke-filled room.

[Warpy]

19. It was started by a run on hedge funds last week

which caused hedge funds to start selling off equities and commodities futures in an attempt to generate enough cash to allow people to cash out of high risk, high return investments like hedge funds.

Now it's turned into a panic with small stockholders dumping their 401Ks in an attempt to preserve their assets.

Add to that is the fact that equities have been overpriced since the 90s, that overpricing propped up by Stupid's tax cuts to the wealthy.

The problem is that it's going to make people think they're poorer when in fact they own what they always did. However, the psychology will be such that people will start limiting their spending to food and transportation, and that is not a good sign for a consumer economy that's running out of steam because people can't afford to take on more debt to support it.

[FirstLight]

24. Presicely!

I understand tht last piece... I haven't been able to just go shopping for "fun" in ages! I used to even be able to take $40-50 and go get nonsense at the drug store, toys for the kids, and candles and fun things...mabe a once a mointh splurge I allowed myself.
Now we are living so scarcely... I buy milk and essentials, and that's IT

How can it get any worse for the likes of me?
That's the screwed up part...all this panic and things get frozen and then I end up scrapping for survival. What little job I have dries up, and then what?????

[Rabrrrrrr]

21. In a technical, what makes it drop is if the stocks that make up the DOW drop as an aggregate.

The DOW is just an average of 30 specific stocks (do a wiki search to find out which ones and how they're rated, etc.).

So as those stocks fluctuate in price, so also does the DOW.

Now, if you are asking what is making those fluctuate so much - especially down - that's a really big complicated question that the economists are trying to figure out right now. But, basically, it means that more people want to sell those stocks than want to buy them, and so they are selling for a lower price.

And the reason so many people want to sell those stocks is because they think they will go down even more in value than if they sell them now.

The beauty of the market is that it must, at some point, bounce back - eventually the stocks will get down to a price that is low enough that people will actively seek them out (assuming that the company hasn't gone bankrupt, like Lehman, and is still doing business). Even in a bad economy, a company that is still producing still has value; and even a company that isn't producing still has a certain value just because of its capital assets, like land, building, inventory, and even more intangible assets like an educated workforce, and so on. Worst case scenario, a company's stock goes to a low point at which the total value of all outstanding stock is less than the total value of physical capital assets, and then that stock becomes a bargain.

Usually, though, the turning around point is at a much higher value than merely the capital asset value of the company.

A low market is a good time to buy - such as now (though I wouldn't suggest buying a lot right now... might want to wait a few months to make major investments)

[Fresh_Start]

23. supply and demand

a lot of people are afraid because they've already had significant losses and don't know how much worse it will get so they are selling and either moving to a 'safe investment' or holding cash.

[benld74]

26. ALL the air going out of Palin's and Bush's head at the same time!!!

[TexasObserver]

28. lack of confidence in the future cause it

[HamdenRice]

29. I realize this is hard to believe, but this is what is happening --->

The stock market (actually the New York Stock Exchange) is a bunch of guys (and they are almost all guys) walking around on a floor buying and selling shares of various companies. Their customers -- from poor schleps with 401Ks to big Gordon Gekko types -- call in purchases or sales of shares.

So let's say yesterday, Sam and Joe were on the floor. Sam said hey Joe, I need 1000 shares of Exxon, and I'm willing to pay $124. Joe says, uh-uh, $125. Sam says, OK, done. That sale gets reported on the "big board" and sets the Exxon share price at $125.

Today there is panic out there in 401K land and millions of people are calling in sell orders. Today Joe needs to sell to Sam. Because more people want to sell than want to buy, the buyers like Sam on the floor will say (and they mostly have Jersey and Brooklyn accents), "you fuckin kiddin me? I got all dese guys wanna sell me that shit? $110 and not a penny more." That gets reported on the big board and the price of Exxon is now $110, having experienced a 10% drop.

Doesn't matter that Exxon is no more or less profitable than it was yesterday. What matters is the last price of a sale reported on the floor of the exchange.

The Dow (actually the Dow Jones Industrial Average) is an average of 30 of the most important companies. When all 30 stocks go down the Dow goes down. In fact, some could be up and some down, but if the average of all 30 goes down the Dow is down.

Today everything is down because of panic selling. The decline is very even across all stocks at about 7%.

[notheyrejustwrong]

30. Old age

[wvbygod]

31. paranoia and greed

same that drive most voters.

[ddeclue]

33. George Bush apparently....n/t

:rofl: