How Stocks Nearly Triggered a Market-Wide Trading Freeze Thursday

Source Beincrypto

The S&P 500 fell as much as 3.8% on Thursday as chip stocks crashed. Another 3.3% drop would have flipped a switch that freezes every US stock at once.

That switch is a circuit breaker, and it locks every buyer and seller out of US stocks for 15 minutes.

What Is a Circuit Breaker, and How Close Did Stocks Get?

Circuit breakers are automatic, market-wide trading pauses. US exchanges created them after the October 1987 crash, an SEC filing shows.

The triggers reset daily from the S&P 500’s last close, 7,688.62 on Wednesday.

A 7% fall, to 7,150.41, stops trading for 15 minutes. A 13% fall, to 6,689.09, stops it again. A 20% fall, to 6,150.89, ends the day.

The first two pauses only work before 3:25 p.m. Eastern Time (ET). After that, a slide runs straight to the close.

The Nasdaq fell harder, but only the S&P 500 can trip the switch.

Nasdaq and S&P 500 Performance. Source: TradingViewNasdaq and S&P 500 Performance. Source: TradingView

Democrats won Congress on Tuesday, and investors fear slower growth for the data centers that buy AI chips, which drove Thursday’s chip selloff.

The Philadelphia Semiconductor Index, which tracks major US chipmakers, fell 10.2%.

By midday, the S&P 500 had recovered to about 7,400, leaving roughly 285 points of room, Trading Economics data showed.

Do Circuit Breakers Calm Panic or Feed It?

The switch last fired four times in March 2020, during the COVID-19 crash. Experts still disagree on what it did.

Some researchers warn of a “magnet effect,” where prices get pulled toward the trigger as they near it.

“…the circuit breakers slowed, but did not completely inhibit downward pressure and the magnet effect is in play,” wrote Laura Kodres, senior distinguished fellow at MIT Golub Center for Finance and Policy.

The exchanges disagree. A 2022 World Federation of Exchanges (WFE) study found prices steadied after the 2020 halts.

“…the circuit breakers in the U.S. are designed adequately and serve as an effective safeguarding mechanism,” WFE CEO Nandini Sukumar said in a statement.

On November 1, BeInCrypto reported Jim Cramer’s warning that the midterms could extend the Nasdaq selloff. The 7% line stays live until 3:25 p.m. ET.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Fed Holds Rates but Quietly Rewrites One Line. Bitcoin and Gold ReactThe Federal Reserve (Fed) kept interest rates on hold at 3.75% to 4% on Wednesday. But two of its 12 voters wanted a hike, and they said so on the record.That split matters for anyone with a mortgage,
Author  Beincrypto
Oct 29, Thu
The Federal Reserve (Fed) kept interest rates on hold at 3.75% to 4% on Wednesday. But two of its 12 voters wanted a hike, and they said so on the record.That split matters for anyone with a mortgage,
placeholder
Binance Hack: $2 Billion Drained, Circle and Tether Freeze, Crypto Markets ReactBinance has confirmed a major security incident, with more than $2 billion drained across wallets. Circle and Tether have reacted quickly to freeze the majority of the funds.The concern centers on an
Author  Beincrypto
Oct 30, Fri
Binance has confirmed a major security incident, with more than $2 billion drained across wallets. Circle and Tether have reacted quickly to freeze the majority of the funds.The concern centers on an
placeholder
Musk and a Wall Street Billionaire Eye a Market Bitwise Says 99.9% of Americans Don't KnowElon Musk, billionaire investor Stan Druckenmiller and Bitwise Chief Investment Officer Matt Hougan all reacted on Thursday to the same deal. Intercontinental Exchange (ICE), owner of the New York Sto
Author  Beincrypto
Oct 30, Fri
Elon Musk, billionaire investor Stan Druckenmiller and Bitwise Chief Investment Officer Matt Hougan all reacted on Thursday to the same deal. Intercontinental Exchange (ICE), owner of the New York Sto
placeholder
Tesla and SpaceX Stocks Fall as Investors Worry About Elon Musk’s Political RiskWhile the US stock market surged on Wednesday, SpaceX and Tesla stocks were sliding. Democrats won both chambers of Congress and the Texas governor’s race, defeats that land squarely on Elon Musk’s co
Author  Beincrypto
Nov 05, Thu
While the US stock market surged on Wednesday, SpaceX and Tesla stocks were sliding. Democrats won both chambers of Congress and the Texas governor’s race, defeats that land squarely on Elon Musk’s co
placeholder
Nvidia Enters Bear Market As Google Strikes Amid Jensen Huang's China Spy WoesNvidia, the engine of the AI boom, is in a bear market. Shares sank to about $177 on Monday, 26% below their October record, as a China spy scandal reached its CEO.A bear market means a fall of 20% or
Author  Beincrypto
Nov 10, Tue
Nvidia, the engine of the AI boom, is in a bear market. Shares sank to about $177 on Monday, 26% below their October record, as a China spy scandal reached its CEO.A bear market means a fall of 20% or
goTop
quote