This post was originally published on this site
U.S. stocks have been experiencing some of the most volatile trading in the past decade in recent weeks and that trend continued into Monday morning after the Federal Reserve slashed rates to nearly 0% and unveiled some of the most dramatic stimulus measures since the 2008 financial crisis to combat the COVID-19 pandemic.
The three main stock-index futures contracts hit daily limit-down rules for the third time this week and circuit breaker rules, intended to prevent panic selling, are likely to kick in at Monday’s open.
Futures for the most-active Dow Jones Industrial Average YMH20, -4.53% for March shed 1,041 points, to 21,798, while S&P 500 futures ESH20, -4.76% and Nasdaq-100 futures NQH20, -4.54% were all trading limit-down.
Gauged by exchange-traded funds that track those indexes, stocks are in for a powerful drop. The SPDR Dow Jones Industrial Average ETF Trust DIA, +9.43% was down about 10% in premarket trade, the SPDR S&P 500 ETF Trust SPY, +8.55% was 9.6% lower and the Invesco QQQ Trust Series QQQ, +8.47%, which tracks the Nasdaq-100, was 8.7% lower.
Futures plunged overnight Sunday setting up for another ugly decline for stocks Monday, after the Federal Reserve cut its federal-funds rates to a range between 0% and 0.25% as well as the announcement of a package of stimulus efforts, failed to encourage buying on Wall Street, with investors spooked by the rapid spread of the COVID-19 outbreak, which has infected about 170,000 people globally and claimed more than 6,500 lives, according to data compiled by Johns Hopkins University, as of Monday morning.
The U.S. stock futures price limit, which was also hit on Thursday of last week, is triggered when stock-index futures, in trading outside the New York Stock Exchange’s 9:30 a.m. to 4 p.m. Eastern trading session, move 5% above or below a reference price set in the final 30 seconds of trading in the previous session, according to CME Group’s website.
When stock futures hit such levels, known as “limit up and limit down,” they aren’t allowed to move any higher or lower.
7%, 13%, and 20% swings for S&P 500
The S&P 500 index itself dropped 7% near the start of Monday’s trading. That fall triggered a separate circuit-breaker rule that pauses stock trading during the regular session for 15 minutes.
If the S&P 500 index SPX, +9.29% were to fall 13% on the day in the regular stock market session once trading resumes after a 7% halt, it would trigger another 15-minute halt. Trading wouldn’t stop if the decline occurred after 3:25 p.m. A 20% drop in the S&P 500 would trigger what’s known as a level three circuit breaker, which would stop trading for the remainder of the session.
Some experts say the unpredictable and violent moves in stock index benchmarks lately reflects a new regime of uncertainty fostered by the COVID-19 epidemic, the infectious disease that was first identified in Wuhan, China, in December.
