Market regulators and exchange executives denied the possibility of temporarily shutting down North American markets on Monday as stocks plunged deeper into the red.
Circuit breakers were triggered immediately on Monday as both the S&P 500 and the S&P/TSX Composite Index opened more than seven per cent down on Monday. When trading resumed, both nearly tripped a second circuit breaker as their losses approached the 13 per cent mark. During this time, the Dow Jones Industrial Average briefly sank 30 per cent below the 52-week high of 29,568 points it reached in February.
As of 3:30 p.m., all three indices were trading about between eight and 10 per cent down.
As of 2:48 p.m., all three indices were trading about nine per cent down.
The latest leg of the sell-off, which came in response to the U.S. Federal Reserve cutting its benchmark rate to between 0 and 0.25 per cent on Sunday, has led to widened calls for officials to explore temporarily shutting down the markets until more is known about the damage that is being caused by the coronavirus.
The question of whether markets should be closed now is a difficult one for some investors to answer. Most see the benefits of doing shuttering the markets until authorities can get a better handle on the virus, but struggle to support something that might impede the free market.
“I’m on the fence because everything else is shutting down,” said Martin Pelletier, portfolio manager at TriVest Wealth. “If this continues, what we’re witnessing in the market, then maybe it is worth considering. Maybe if the markets open in two weeks and we had better visibility on what happens with the virus, it could go the other way (toward a rally).”
But Securities and Exchange Commission Chairman Jay Clayton rejected the idea in an interview with CNBC, saying that “markets should continue to function in times like this.” NYSE President Stacey Cunningham also told Fox News on Monday that closing down the markets would be the “wrong response” and that “it’s important that investors have access to their money.”
The last time that the U.S. stock market shut down was for two days in 2012 when Hurricane Sandy tore through the U.S. Most notably, the SEC shutdown the market in the wake of the 9/11 terrorist attacks. To avoid panic selling, U.S. markets did not open on that day and remained shuttered until Sept. 17. The TSX opened for 71 minutes of trading before closing down until Sept. 13.
Shutdowns have also occurred due to the John F. Kennedy assassination, the Franklin D Roosevelt’s Bank Holiday and for nearly five months during the First World War.
Earlier this year, China deployed the strategy as the virus spread from Wuhan and into other parts of the country during its Lunar New Year celebration. The Chinese stock market shuts down every year for a week during the celebrations, but authorities extended the closure for an additional three days in late January and early February.
The closure may have only delayed the inevitable: When the Chinese markets reopened on Feb. 2, the Shanghai Composite Index fell more than seven per cent. The Dow suffered a similar fate when markets re-opened following 9/11 and had what was then a record loss of 684 points.
David MacNicol, president and portfolio manager of MacNicol and Associates has worked through the financial crisis in 2008, the tech bubble bursting in the late 1990s and Black Monday in 1987 and yet it’s the downturn he’s witnessed in the last month that has been the sharpest. It could still get uglier for investors and an entry point is now “anybody’s guess” but that doesn’t convince him a market closure is needed.
“We’re doing our best to separate ourselves and self-quarantine,” said MacNicol. “To do something similar to the market and put it on hold for two weeks, I don’t know, I think you’re playing with mother nature.”
In a note to clients, Citigroup analyst William O’Donnell explored the possibility of a shut-down and appeared less concerned about one, given the circumstances.
“This is a World War against the virus, so maybe it’s not such a crazy idea?” O’Donnell wrote.
• Email: vferreira@nationalpost.com | Twitter: VicF77
