U.S. stocks had gone more than 20 years without a market-wide trading halt. We've now tripped the so-called circuit breakers two times in four days.
On Monday, March 9, the S&P 500 fell 7% within minutes of the open, triggering a market-wide trading halt for the first time since 1997. Thursday morning's plunge of more than 7% also tripped a circuit breaker.
Circuit breakers were first introduced after the Black Monday crash of October 1987. The Dow dropped almost 23% in a single session, which stands as a record to this day.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Circuit breakers are intended to curb panic selling. Like calling a timeout in sports, a temporary pause in trading allows market participants to catch their breath, though it doesn't necessarily keep stocks from declining once trading resumes.
How Circuit Breakers Work
There are three levels of circuit breakers tied to how steeply the market declines:
- A Level 1 market-wide circuit breaker is tripped if the S&P 500 falls 7% from its previous close.
- A Level 2 circuit breaker comes into effect when the market plunges 13%.
- A Level 3 circuit breaker kicks in if the market tanks 20%.
A Level 1 or Level 2 breach halts trading for a minimum of 15 minutes. A Level 3 rout halts trading for the remainder of the trading day.
Level 1 and Level 2 circuit breakers can be triggered between 9:30 a.m. and 3:25 p.m. Eastern. A Level 3 breach can be triggered at any time.
Individual stocks also have circuit breakers, with the trigger levels determined by the price of the stock.
The circuit breakers have worked as intended this week, in that they've given traders a chance to at least catch up as markets tumble on the growing COVID-19 pandemic. Given that the outcome of this crisis is impossible to price in at this point, don't be shocked if we trip circuit breakers repeatedly in the sessions ahead.
-
How to Skip Fees at the BankYou can steer clear of fees, especially if you choose your account wisely. Here are some tips to keep them at bay.
-
9 Worst Pieces of Retirement Advice EverDon’t let bad guidance derail your retirement. Here is what financial experts say is the advice every retiree should absolutely avoid.
-
Dow Erases 717-Point Gain to End Lower: Stock Market TodayThe main indexes started the day with solid gains, but worries of an AI bubble weighed on stocks into the close.
-
S&P 500 Snaps Losing Streak Ahead of Nvidia Earnings: Stock Market TodayThe Dow Jones Industrial Average also closed higher for the first time in five days, while the Nasdaq Composite notched a win too.
-
Dow Trims Its Loss to 498 Points: Stock Market TodayMarkets are wondering more and more about returns on the enormous amounts of capital hyperscalers are investing in AI.
-
Dow Falls 557 Points to Start NVDA Week: Stock Market TodayThe Oracle of Omaha saw growth and value in certain corners of the stock market during the third quarter.
-
Investors Buy the Nasdaq's Big Dip: Stock Market TodayStocks are up and down again to end an up-and-down week ahead of big earnings announcements and the eventual return of regular economic data flow.
-
Dow Dives 797 Points as Government Opens: Stock Market TodayThe process of pricing and re-pricing realities old and new never stops, and next week promises to be at least as exciting as this week.
-
Dow Climbs 327 Points, Crosses 48,000: Stock Market TodayMarkets are pricing the end of the longest government shutdown in history – and another solid set of quarterly earnings.
-
Dow Climbs 559 Points to Hit a New High: Stock Market TodayThe rotation out of tech stocks resumed Tuesday, with buying seen in more defensive corners of the market.
