Stocks stumble after a fake tweet announced White House attack

The AP quickly announced that its account had been hijacked and the report was false. The Dow began to climb again, recovering all its losses by 1:18 p.m. That was 10 minutes after the fake tweet, according to FactSet, a financial data provider.

A group called the Syrian Electronic Army said it was responsible for the hack. But the claim has not been corroborated. The FBI and the Securities and Exchange Commission said they had opened investigations into the incident.

Some Wall Street pros were surprised that a single tweet could move markets so much.

Julian Brigden, managing partner of Macro Intelligence 2 Partners, an investment consultancy, said the drop suggested an "unstable" trading environment dominated by investors too quick to buy or sell without any thought.

"To me, it's indicative of a very dangerous market," he said.

Though stocks eventually recovered for the day, investors have been on edge recently.

"People are looking for a reason to sell, and (Tuesday) it was a fake tweet," said Adam Sussman, head of research at Tabb Group, a research firm. "Of course, once they realized it was fake, they bought back in, or they stopped selling."

But he thinks humans played only a minor role in the stock plunge. He said most professional investors are too savvy to sell on a tweet.

"They'd get a tweet from AP and then say, 'Oh, was there a corroborating tweet from Bloomberg? A corroborating tweet from Thomson Reuters?' and so forth," he said. "So I don't believe that anyone selling substantial money saw that tweet and just began selling off billions of dollars."

Joe Fox, founder of online brokerage Ditto Trade, said the selling was too fast for humans to have pulled off, and computers were to blame.

"Whoever this jerk (who wrote the tweet) is probably cost some people millions of dollars in a matter of minutes," he said.

Computer programs have come to dominate stock-market trading over the past 20 years. The goal is speed, and it's led to an arms race as companies develop ever-faster programs. High-speed trading came under public scrutiny following the "flash crash" of May 6, 2010, when a glitch erased 600 points from the Dow in five minutes.

One of the latest weapons in the arms race is machine-readable news. The Thomson Reuters service, one of the more popular offerings, scans 50,000 news sources and 4 million social media sites for stories.

Brown says his programs take news articles and announcements and automatically flag answers to the essential questions — who, what, where, when and why. The answers are translated into a code that an investment firm's trading program can understand and then sent to clients. All of that takes less than one-thousandth of a second.

It's up to the investment fund to place a value on each word and rank established news outlets over other sources like blogs or social media websites, Brown said.

Tapping into the stream of comments on Twitter has become increasingly popular. Earlier this month, the SEC cleared companies to release key announcements on Twitter, Facebook and other social-media venues. Bloomberg also added Twitter to its terminals, a fixture on every big bank's trading floor.

Regulators have been studying the problems posed by automatic computer trading for years. Last month, the SEC proposed tighter oversight of automatic trading. Stock exchanges would be required to test their trading systems routinely, and report to the SEC about problems that could damage trading, like hacking.

"The exchanges love speed," said Bart Chilton, a member of the Commodity Futures Trading Commission, a regulator that has been reviewing high-speed programs. "I'm not so sure that fast is always better."

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