Did The Market Just Behave Reasonably?

The market did something completely new and out of character on Thursday: It reacted reasonably to an unforeseen event. At around noon yesterday, the Nasdaq (NASDAQ: NDAQ  ) exchange experienced a technical issue -- one that we still don't quite have a reason for, nor have we been assured it won't happen again. The exchange shut down for nearly the entire afternoon. A year ago, this would be the type of thing that would send the market into a tailspin, ruining people's stop-loss orders and creating legions of lawsuits. Instead, the market seemed to move on as if nothing had happened at all, almost oblivious to the fact that it was one of the longest unplanned halts in recent memory.

Is Mr. Market stabilizing?

Good timing?
The Nasdaq exchange has provided very little information as to what happened or why it happened, but it didn't seem to matter on Thursday. The S&P ended up more than 14 points, or nearly 0.9%, while the Dow rose 66 points. According to a Yahoo! news article, it was the second best day we've had in August.

The fact that this happened in August may have something to do with its relative unimportance. In the final doldrums of summer, trading volume is historically very low, and today wasn't an exception. Had this occurred in the beginning of the year, or sometime in the fall, we may have seen a more characteristic market freak-out.

But let's say, for the sake of optimism, that the market's muted reaction to a major exchange shutdown is evidence of a maturing, if jaded, participant base.

Getting wiser
Over the past few years, many investors' faith in the market has been repeatedly shattered, whether by corporate wrongdoing, macroeconomic meltdowns, or "technical errors" stemming from the exchanges themselves. We've seen nearly every conceivable excuse to sell off triple-digit percentages in the markets. Is it unreasonable to posit that the market may be wising up a bit to the unpredictable nature of the business?

The Nasdaq shutdown was certainly inconvenient, it hurt brokerage firms that rely on execution fees, and it should raise eyebrows and some questions as to the health of our trading systems. But should it damage the values of public companies? In a logical world, that answer is a definite "no." The fact that the market sided with logic is incredibly refreshing.

A long way to go
The Yahoo! piece cites a managing director from LandBolt Capital who believes that the impact will be felt in the coming days. At the time of this writing, it's impossible to know, but it's hard to imagine the market woke up this particular Thursday feeling older, more mature, and ready to smoothly handle incidents.

As an investor, and one whose worries may have been renewed by yesterday's glitch -- the umpteenth in a just a few years -- remind yourself that you invested in companies, not a stock market. Your fractional ownership of Apple was not affected, in the long run, by some error on Wall Street. The glitch didn't carry over to Foxconn and zap underpaid laborers out of existence for three hours.

That may sound silly, but it's exactly what is implied when the market dives 300 points on the back of a technical error.

More from The Motley Fool
With the American markets reaching new highs, investors and pundits alike are skeptical about future growth. They shouldn't be. Many global regions are still stuck in neutral, and their resurgence could result in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!


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