The stock market NYSE is halted for trading.
Circuit breakers are triggered.
Scary as Monday’s start to U.S. stock trading was, the halt that it triggered looks to have done its job, at least for now.
The S&P 500 plunged 7% four minutes into the session, tripping a NYSE circuit breaker aimed at preventing a broader panic.
After trading resumed, the index dipped just a bit more, then quickly pared losses to trade about 5.5% lower as of mid-morning in New York.
What are Circuit Breakers?
“There’s a reason why they have those circuit breakers: it’s to give people time to come back from panicked feelings. It’s always a good idea to give people time to digest the move and apply some logic.” said Chris Zaccarelli, the chief investment officer at Independent Advisor Alliance.
The stock rout, spurred by tumbling oil prices and growing fear of th economic impact of the coronavirus, put the vitality of the longest-eve bull market in jeopardy.
The index is now down about 17% from a record reached in mid-February.
“Certainly that 15-minute pause seemed to create a little bit of stability. That’s exactly why we have it in place, to ensure that moves are orderly.” said Rob Romano, head of Americas portfolio advice at UBS Global Wealth Management.
Volatility due to Coronvirus outbreak
Volatility has reigned in markets around the world amid an outbreak that has infected more than 108,000 people.
At least 10 billion shares have traded on U.S. exchanges each day for two weeks, and the VIX – dubbed Wall Street’s “fear gauge” – has closed above 30 for seven days straight.
Futures had plunged 4.89% overnight Sunday, triggering exchange rules tha limit losses on those contracts and distorting price discovery for the cash market before the opening.
Crude oil fell as much as 34% to $27.34 a barrel, the worst day since the Gulf War in 1991, after Saudi Arabia initiated an all-out price war.
Another 15-minute pause would happen if stocks reverse course and losses reach 13%, a drop that would put the S&P 500 at 2,585.96. If the decline hits 20%, or 2,377.9, markets will close for the day. Only the 20% rule applies in the final 35 minutes of cash trading.
Traders have never seen a 13% or 20% breaker trip.
Today’s stoppage likely interrupted computer-driven trades based on algorithms, potentially preventing much bigger losses.
That doesn’t mean the market cannot go back down and make a lower-low at some point, but the circuit breaker worked as it was intended to this morning.