Welcome to CrushTheStreet.com’s Weekly Market Wrap Up!
Let’s get started in the equities sector, which saw red amidst speculation of job growth concerns and rising food prices potentially hindering a tepid consumer confidence trend. The benchmark S&P 500 index closed at 1,888 points, down a tenth of a percent while the Dow Jones ended at parity against the prior session. The biggest loser by far was the NASDAQ composite index, dropping nearly a full percent and giving up most of its gains from earlier in the week.
HFT Debate @ the Street: Video
Before the opening bell rang on Monday morning, Wall Street was already abuzz surrounding the controversial and extremely divisive issue of high-frequency trading, which entered into the investors’ lexicon once again due to the well-publicized 60 Minutes interview with Michael Lewis, author of the new book, “Flash Boys.” In what can only be described as a market hit piece, Mr. Lewis denounced the equities sector as rigged, claiming that high-frequency trading is used by powerful investment firms and banks, including the exchanges themselves, to gain an insurmountable advantage over the commoners.
The problem, however, is that the mere existence of high-frequency trading does not definitely prove market manipulation. At its core, the definition of HFT is the use of algorithms to make trades based on a given set of logical functions. Since these complex algorithms require advanced computer technology, the process by default is incredibly quick, often accomplishing in minutes tasks that would take a human trader several hours to perform.
The distinction is important to remember because it’s not the tail that wags the dog: in other words, the ability to make fast trades is not immoral, nor is it illegal. Further, it would be extraordinarily difficult to police such technology and it would reek of hypocrisy. The advent of the internet has allowed for digital trading to be the norm and the trajectory of the markets, whether you like it or not, is towards increased digitization and less human interaction.
Of course, some of the critics of HFT will cite commodities manipulation as one of the dubious “beneficiaries” of the Algorithm Era, with the precious metals complex taking another hit on Thursday due to technical selling pressure off the backs of a stronger U.S. dollar index.
Gold came off slightly from the prior session, down a quarter of a percent, while silver received an inordinate blow, losing eight-tenths of a percent. However, the platinum group metals have performed relatively well this year and bucked the trend this week, posting modest gains.
And that will do it for this edition. Thanks for watching, and we’ll see you next week!