The morning after the Federal Reserve cut its interest rates to near zero at the urging of the president (a move meant to stabilize jittery markets worried about the economic fallout from the global response to the novel coronavirus pandemic), all of the indexes posted major losses. For the third time in the past two weeks, the Dow hit its emergency circuit breaker as the market opened; the S&P also halted trades.
- The Dow Jones Industrial Average was down nearly 10% at the open, falling by 2,250 points to 20,935
- The Nasdaq was off by 6.12%, falling 7,392.73
- The S&P 500 fell by 8.14%, or 220.55, to open at 2,490.47
The huge drop mirrored movements in international markets — which were all thrown into turmoil by the Fed’s drastic rate cuts. Hong Kong’s Hang Seng Index, Japan’s Nikkei, London’s FTSE and the Shanghai Exchange all saw losses for the day (London is still trading).
The Monday morning sell-off all but erased the “biggest stock market rise in history” touted by President Donald Trump on Friday after an announcement in the Rose Garden detailing the steps America’s corporations were taking to halt the spread of the COVID-19 outbreak.
That meeting was followed by a weekend full of pronouncements from cities and states across the U.S. urging Americans to self-quarantine and shuttering non-essential businesses like bars, restaurants and entertainment venues in an effort to enforce social distancing amid an ongoing rise in cases.
Meanwhile, the government is beginning to roll out large scale testing for COVID-19 to finally determine exactly how widely the disease has spread. The latest number, tallied by Johns Hopkins, is nearly 170,000 cases globally, with nearly 3,800 in the U.S.
The see-saw of the markets puts everything into unforeseen territory and not even the supposed digital safe haven of bitcoin is immune. Prices of the digital currency fell to $4,644.53 compared to one month ago, when it was hovering around $10,000.
This is the third time that so-called circuit breakers (trading curbs) have tripped in the last few days. We had a Level 1 circuit breaker trip on March 9 and another one on March 12 as markets recoiled from growing concerns over the global outbreak of coronavirus. While markets have also had their up days — this past Friday the Dow surged more than 5% — the persistent expansion of restrictions on consumers and travel continues to ripple through the markets.
For a Level 1 pause to be triggered, the S&P 500 has to see a 7% drop from the previous trading day’s close. A Level 2 stop is activated at a 13% drop and a Level 3 at 20%. Level 1 and 2 triggers shut down the market for a minimum of 15 minutes; a Level 3 circuit breaker suspends activity on the NYSE (and major U.S. exchanges) for the remainder of the trading day.
These circuit breakers were put in place by the Securities and Exchange Commission, and have been standardized across major U.S. exchanges since 2012.
Circuit breaker trips are more common on individual stocks (where similar rules apply), but market-wide trading halts are relatively rare. Three in just a matter of a bit more than a week is unprecedented in the history of the U.S. markets, barring the exception of the 9/11 terrorist attacks, in which the New York Stock Exchange and other markets were closed for roughly a week.
