Mad March: how the stock market is being hit by COVID-19

The market has reacted to recent unpredictability with large drops, triggering a market wide circuit breaker four times in March. The safeguard pauses trading for 15 minutes in hopes the market will calm.

The U.S. Securities and Exchange Commission mandated the creation of market-wide circuit-breakers to prevent a repeat of the Oct. 19, 1987 market crash, in which the Dow plunged 22.6%. Since then, they have only been triggered once in 1997 before the four times this March.

Trading stopped four times

The S&P 500 triggered level 1 market wide circuit breakers during the opening hour on March 9, 12 and 16 based on drops of 7% from the previous close, and tripped later in the day on the 18th. Trading also halts on both the Dow and the Nasdaq when a circuit-breaker is triggered on the S&P 500.

How circuit breakers work

The current guidelines mandate a 15-minute pause in trading on all U.S. stock exchanges if the S&P 500 index falls more than 7% before 3:25 p.m. New York time. The breakers are set up to calm markets by halting trading as it grows more and more volatile. The first two levels of breaks are set to halt trading for 15 minutes, while a level 3 will suspend trading for the rest of the day.

Falling markets, rising volatility

The Dow and S&P 500 have both been seeing drops due to uncertainty around the global coronavirus pandemic, while the Chicago Board of Exchange Volatility Index has been rising steadily since the middle of February as the virus began to spread around the world.

The coronavirus has created such uncertainty around the world that two of the largest single day drops in the Dow Jones Industrial Average have been from March of 2020.