If you thought the last two weeks were bad for stocks, they just went from bad to worse. The Dow Jones dropped almost 1,900 points to start the day, an over 7% drop. The S&P 500 dropped 7% too, triggering the New York Stock Exchange’s first circuit breaker, the first time that has happened since the 2008 financial crisis. That’s not good for the outlook for stock markets.
For those not familiar with stock market trading curbs, the NYSE instituted a series of “circuit breakers” to stymie the ability of a single day’s trading losses from wiping out stock markets. They were instituted in response to the Black Monday stock market crash of 1987, in which the Dow Jones lost over 22% in a single day, the worst single-day percentage loss ever.
The first circuit breaker occurs when the S&P 500 drops 7%, when trading is halted for 15 minutes. If the S&P continues to drop, the next circuit breaker kicks in at a 13% drop. That brings another 15-minute trade halt. If either of those levels is reached after 3:25PM, trading continues. If the drop continues at any time to 20%, trading is halted for the day.
What we saw last Friday was another instance of the Plunge Protection Team springing into action. The Dow Jones was headed for another 1,000-point loss, with the Dow down around that amount at 3:10PM. But a sudden rebound at the end of the day meant a more than 700-point increase, with a close down around 250 points. Everything was all set for a rebound into the beginning of the week, but it was not to be.
The news that Italy is quarantining 16 million people in its northern provinces shook markets hard, and shook confidence that we might be seeing an improvement in the handling of coronavirus in the West. It’s all but inevitable that we’ll see more cases now in the US, and will likely see some sort of quarantines going into effect somewhere.
Markets were also shaken by the new oil war between Russia and Saudi Arabia. With oil demand already sinking due to lessened Chinese demand, Saudi Arabia’s attempt to get OPEC to cut oil production failed. In response, Saudi Arabia is cutting its oil prices in an attempt to win market share from Russia. World oil prices plunged over 30% as a result, further shaking confidence among investors.
It’s a scary time for many investors right now, with markets going absolutely nuts. Coronavirus is just the tip of the iceberg when it comes to collapsing stock markets, with investors around the world having lost trillions of dollars in wealth already. If you haven’t already protected your investments by investing in gold and silver, what are you waiting for?