False Rumor of Explosion at White House Causes Stocks to Briefly Plunge; AP Confirms Its Twitter Feed Was Hacked

A news agency tweet, that turned out to be fake about explosions at the White House injuring President Obama, sent markets on a round-trip roller coaster ride.

@AP, the official twitter handle of the respected Associated Press news agency, sent out a message at about 1:07 p.m. ET, saying "Breaking: Two Explosions in the White House and Barack Obama is Injured." The AP quickly said it was hacked.

White House Press Secretary Jay Carney said, "the President is fine" despite what the hacked Twitter feed said.

However, the market impact was already intense. On the floor at the Chicago Mercantile Exchange, traders quickly traded on the tweet, selling S&P futures and buying Treasury 10-year futures. For several minutes, the floor was a flurry of activity, as it was in trading rooms across Wall Street, until the Associated Press tweeted that its account had been hacked.

The Dow plunged more than 140 points and bond yields fell. Within six minutes, the Dow recovered its losses and was trading with triple-digit gains. Reuters estimated that the temporary loss of market cap in the S&P 500 alone totaled $136.5 billion.

In a closely linked trade, dollar/yen also plunged temporarily to about 98.60, before recovering to a level above 99.

The false tweet comes at a time of hypersensitivity in the markets toward terrorism, following the Boston Marathon bombings. It also highlights the vulnerability of social media and follows on the hacking of media sites and just Sunday, CBS' '60 Minutes'Twitter account.

The Federal Bureau of Investigation, Secret Service and Securities and Exchange Commission were all investigating the tweet.

A group calling itself the Syrian Electronic Army, which is supportive of Syrian leader Bashar Al-Assad, later claimed that it was responsible for the tweet on its own Twitter account. The group has also claimed to have hacked the Twitter accounts of National Public Radio, the BBC and '60 Minutes.'

"You wonder who did it and whether it was done on purpose. It certainly was an instant implosion," said Art Cashin, of UBS shortly after the market recovered. He had watched the minutes of bedlam on the floor of the NYSE and said the reaction was especially dramatic because it said the president was injured.

The rapid fire trading also highlights the role of computers and algorithmic trading on Wall Street.

"That goes to show you how algorithms read headlines and create these automatic orders – you don't even have time to react as a human being," said Kenny Polcari of O'Neill Securities, on "Power Lunch." "I'd imagine the SEC's going to look into how this happens. It's not about banning computers, but it's about protection and securing our markets."

SEC Commissioner Daniel Gallagher later said the agency was looking into it, according to Reuters. The Secret Service tweeted that it was aware of the tweet and would "take the appropriate follow-up."

Other major news agencies did not follow the false tweet, and many major news organizations have representatives at the White House.

"It was really scary and really fast," said Art Hogan of Lazard Capital Markets. "It corrected fast. By the time you realized it happened, it already corrected."

"We're in an environment where we're sensitive to any news that sounds like terrorism," said Hogan. "That makes it that much more believable. That's the tricky part. When something like AP gets hacked, it becomes reality for a period of time, until it's not."

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