Another day, another massive decline in the stock market. Despite an emergency stimulus plan from the Federal Reserve announced over the weekend, markets opened much lower than futures trading this morning indicated. Just an hour into the session, the Dow Jones Industrial Average saw a nearly 10% drop in value, with the S&P 500 dropping more than 8% and the Nasdaq dropping about 6%.
That heavy selloff triggered a 15-minute pause on trading, with the markets reopening at 9:45am ET. 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. Additional circuit breaker levels exist if the markets decline by higher percentages. These circuit breakers were put in place by the Securities and Exchange Commission, and are standardized across major U.S. exchanges since 2012.
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.
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.