Liquidity vacuum: GE suffers most since 1987 Black Monday

By MoneyTimes

Aug 26, 2015 09:22 PM EDT

In an unprecedented move, the stock price of world's most diversified business conglomerate fell 21 percent on the Wall Street. The shares of General Electric (GE) suffered biggest loss ever since the Black Monday in 1987 eroding the company's value by a whopping $53 billion.

Market observers wonder over why the GE's stock fell so drastically in the absence of any major news pertaining to the company. Some analysts attribute this unreasonable slump in stock's value to liquidity vacuum.

The other stocks that followed GE in the downfall include Pepsi as well. Pepsi shares dropped over 20 percent. Interestingly, the soft drink major's rival Coca-Cola's fall was confined to less than eight percent.

The GE stock price fell to $21.97 on Monday (24 August) and later recovered to $24.89 on the Wall Street. It further recovered to $24.43 on Tuesday as strong rally appeared to be on the Wall Street. However, GE stock closed at $23.27 registering 2.51 percent intraday loss. 

Though both the soft drink majors suffered losses on Monday, analysts couldn't arrive on what specific reasons led the stocks take a plunge on the Wall Street. The drop in GE's stock was so deeper than its peers and market observers wonder over this as there was no specific news that affects the trading pattern in the stock. 

GE is a leading global manufacturer of everything from light bulbs to jet engines. The steep fall of manufacturing giant's shares without any negative factor is raising many eyebrows in the market. Still there was no specific reason why GE became subject to violent volatility on the stock markets. 

Tuesday's dramatic session saw signs of strong rebound, but it failed to sustain till the end of the session as fears about China's economy again gripped the market sentiment. China's central bank on Tuesday cut interest rates and this was for second time in the past two months.

Dow Jones Industrial index dropped over 1,000 points and S&P 500 suffered its worst session since 2011 as it shed 11 percent in just one week. Nasdaq index fell over eight percent during the week. The latest drop in the markets was reminiscent of fears that created tremors during 2008 financial crisis. 

Citing above factors, some analysts draw conclusions over the sudden drop of GE saying when there were no buyers such liquidity vacuum situation arises. This would create wide swings in the share price until the stock gets a potential buying support. When fears about global factors were gripped the market, nobody thought of buying, opine analysts. 

The global stock markets suffered huge losses in Black Monday on 19 October 1987 as the crash was triggered in Hong Kong and spread to Europe and the US markets. The 22.61 percent (508 points) fall of Dow Jones hammered down many major stocks.

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