A Case of Mistakenly Tripped 'Circuit Breakers'

It was all Julius Randle's fault... Berkshire Hathaway loses 99.97% in a flash... A 'technical issue' strikes 40 stocks... A software update supposedly went wrong... Oil trends... What else to watch this week...

'We're experiencing technical difficulties'...

This might as well have been the headline at the New York Stock Exchange ("NYSE") this morning... The giant screens showing stock prices indicated what appeared to be – and, it turns out, actually was – a glitch: Berkshire Hathaway A-shares were down roughly $625,000, or 99.97%.

On today's open, after New York Knicks forward Julius Randle and representatives from the shoe company Sketchers rang the opening bell on Wall Street, dozens of stocks started experiencing wild price fluctuations...

Among them were Berkshire Hathaway's A-shares (BRK-A), Barrick Gold (GOLD), Chipotle Mexican Grill (CMG), and the Bank of Montreal (BMO), in which trading was halted this morning, and three dozen more. Here's our StansberryResearch.com chart of Berkshire A-shares this morning as an example...

Berkshire's A-shares cost so much, by the way, because shares have never been split over the decades. The company's B-shares, issued in 1996 at one-thirtieth of an A-share, are more accessible to everyday investors (and traded normally today).

Trading in all the impacted stocks returned to normal by just before lunch, with the NYSE saying around 11:45 a.m. that "all systems are currently operational." The trading didn't appear to affect the broader indexes, and prices returned to regular levels in the stocks.

So what caused this 'glitch'?...

As it unfolded, I (Corey McLaughlin) saw people speculating on social media platform X about everything from a cyberattack to the doings of Keith "Roaring Kitty" Gill of GameStop fame being the source...

At Stansberry Research, our customer-service team started to receive questions from subscribers wondering why some of their stocks were showing 99% losses.

The NYSE said today it was a "technical issue" related to the limit-up and limit-down price bands that "triggered halts in a number of stocks" listed on the exchange.

As some readers may know, extreme short-term volatility trips "circuit breakers" in the market, which automatically halts trading. It happened to the broad market in March 2020 amid the pandemic panic, with trading being stopped multiple times in a day at times.

Specifically, when it comes to individual stocks, these price bands are set at a percentage level above and below the average price of a security over the preceding five-minute period, and they are published by the Consolidated Tape Association's ("CTA") Security Information Processor.

And early this afternoon, the CTA said...

Today between 9:30 a.m. and 10:27 a.m., CTA experienced an issue with Limit Up/Limit Down price bands that may have been related to a new software release. To resolve the issue, CTA failed over to the secondary data center, which is operating on the previous version of the software...

CTA is restoring the previous version of the software in the primary data center and will be running out of the primary data center on Tuesday, June 4, 2024.

The CTA also published a link to an Excel document with 40 ticker symbols that it said "were potentially impacted by erroneous price bands due to this software release."

This list included several "meme stock" favorites, like GameStop (GME), whose shares were up 30% while all this was going on. Over the weekend, Gill posted a screenshot on social media of a trading account with a $116 million position in the stock.

The list of halted stocks also included AMC Entertainment (AMC) and the recently launched Destiny Tech100 (DXYZ), a fund that intends to own 100 of the top privately held technology companies like Elon Musk's SpaceX.

I suspect there's more to this story than a software release... But as we go to press today, we'll mostly leave it right here for now and continue to investigate. Trading today went on without major incident, unless you count the major U.S. indexes finishing mixed. The Nasdaq was up 0.3% and benchmark S&P 500 closed 0.1% higher while the Dow Jones Industrial Average was 0.3% lower and small-cap Russell 2000 was down 0.6%.

'Fish in water'...

For one thing, though, these events are right in the analytical wheelhouse of our friend and colleague Dan Ferris, who has for years warned investors of events like this...

In fact, we talked about something just like it possibly occurring in our "Top 10 Potential Surprises for 2024" episode of the Stansberry Investor Hour in January (and, admittedly, Dan has included the possibility in his list for many years prior as well).

We were talking about the idea of the S&P 500 Index dropping 20% in a day in a move that the "circuit breakers" couldn't prevent... But we talked about individual stocks seeing volatile moves, too. And, as Dan explained for context...

Philosophically, I don't think humans control markets. I think humans are in markets the way fish are in water. We don't control the wind or the tides or the currents or anything about the water. We influence it because it's made up of our activity. So it's not exactly like fish in water, but it's enough like it, and we don't control it nearly as much as we think we do.

He suggested having cash on hand to take advantage of situations like this. It wouldn't have helped you today, as trading was halted in the affected names... But in a broader market drawdown, you'd want capital to put to work when everyone else is panicking.

Today, a human, or more than one, evidently made a "software update" during intraday trading that caused some large-scale issues. Stay tuned for more thoughts on this. No guarantees, but I wouldn't be surprised if Dan addresses this incident soon as well.

A few words about oil...

Oil prices hit multimonth lows today... The OPEC+ oil cartel announced plans on Sunday to allow members to phase out "voluntary" production cuts starting in October. This suggests that more supply could hit the market.

As of this afternoon, prices for Brent crude – the international benchmark – were down nearly 4% to roughly $78 per barrel. West Texas Intermediate ("WTI"), the U.S. standard, was down 4% to around $74 per barrel.

What else to watch this week...

Today, the Institute for Supply Management's manufacturing index – a U.S. manufacturing data release – measured 48.7% in May. Anything below 50 indicates a contraction. In response, we saw the major U.S. indexes trade lower, along with bond yields.

Moving ahead, it's a heavy week for labor-market numbers...

The biggest data point of the week comes last, on Friday, with May's "nonfarm payrolls" report and an updated headline unemployment rate from Uncle Sam. The rate for April was 3.9%.

Before then, though, there are other numbers worth watching. The monthly Job Openings and Labor Turnovers Survey ("JOLTS") report will come out tomorrow morning and is expected to show more weakness in the number of available jobs in the U.S.

Payroll processor ADP's monthly private-sector jobs report comes out on Wednesday, and weekly initial jobless claims come out on Thursday.

Should any or all of these reports indicate a weakening jobs market, I'll be gauging whether bad news for the economy translates into "bad news" for stocks.

Will signs of economic weakness push U.S. stocks lower, given that a weak economy would be worse for businesses than the market had considered? Or will poor economic data be taken more as a sign that the monetary policy environment will indeed "loosen" with lower interest rates – and push stock prices higher on balance?

We will see. Very often in the past year or so, "bad news" has been mostly "good news" for stocks. But that won't last forever.

As a Digest reader, you get the first look at Greg's new Diamond's Edge video each Monday.

For more free videos, check out our YouTube page... And if you're interested in more research and analysis from Greg, click here for information on how to get started with a subscription to his Ten Stock Trader advisory.

New 52-week highs (as of 5/31/24): ABB (ABBNY), Arhaus (ARHS), Alpha Architect 1-3 Month Box Fund (BOXX), Cameco (CCJ), Dimensional International Small Cap Value Fund (DISV), iShares iBonds December 2024 Term Treasury Fund (IBTE), Liberty Energy (LBRT), Eli Lilly (LLY), iShares 0-3 Month Treasury Bond Fund (SGOV), and Vanguard Short-Term Inflation-Protected Securities (VTIP).

In today's mailbag, feedback for our colleague Dan Ferris, stemming from his latest Friday essay... and thoughts on why maybe high(er) interest rates aren't working to slow the economy... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"If you don't have a PhD, as far as I'm concerned you've earned it, Dr. Ferris." – Subscriber Dave E.

"I think the most interesting perspective of the last week is that the high rates paid on money market accounts – a direct effect of the feds higher for longer policies – is causing the well-healed to just keep cash in the money markets until other assets become better values. In other words, the policies designed to slow the economy are not working due to their direct effects. Drop the interest rates and we'll go back into risk assets like real estate and stocks." – Subscriber M.W.

All the best,

Corey McLaughlin
Baltimore, Maryland
June 3, 2024