Explaining the Late-Day Market Trading Surges (and Declines)

I was at an ETF media event hosted by NASDAQ OMX Global Financial Products and the Journal of Indexes today. One topic of discussion was the recent bout of late-day stock market volatility.

Today is a perfect example. When the panel met with the media around lunchtime, the DJIA was up some 300 points. In the last hour of the trading session, the market surged significantly to close up 889 points.

Why is this happening?

Even the featured panelists at the media event, who are among the brightest in the investment business, are uncertain. “Talk to 10 people, and you’ll get 10 different answers,” says indexing guru Gus Sauter of Vanguard Group. “Maybe 11,” chimed in Lee Kranefuss, global chief executive officer of iShares, Barclays Global Investors.

One theory for the late-day swings is that mutual funds and hedge funds are selling (or, like today, buying) stocks later in the trading session to cover expected redemptions, or inflows. Another theory is that active managers and hedge funds are meeting margin calls. Maybe it is a result of program trading.

I’m surprised no one has a concrete answer. What is your take on the late-day swings? Why is this happening now? Will it ever end, or is this part of the “new normal”?