As was the case on Monday, pre-market trading had already shown signs of strain in stock futures. By the time markets opened, all three major indices — the S&P 500, the Dow Jones Industrial Average and the Nasdaq composite index — had dropped 5 percent, hitting the maximum allowable selloff for futures before the start of trading.
That outlook persisted despite the fact the White House spoke Monday and Tuesday of plans for spending hundreds of billions of dollars to help ease the economic damage caused by virus-related shutdowns and layoffs. And the Federal Reserve on Tuesday announced significant expansions in lending from a stabilization fund to make sure creditworthy businesses could continue to access funding.
Following all those announcements, markets recovered slightly during trading Tuesday, with the S&P advancing 6 percent.
But Tuesday’s bounce followed a historic bloodbath in the markets on Monday, when the Dow Jones Industrial Average suffered its worst single-point loss in history, declining 2,999 points or 12.9 percent.
Investors were clearly expecting a rough start to the week after a weekend of government announcements to rapidly expand containment measures, including through school closures as well as shuttering bars and restaurants. The Federal Reserve also cut interest rates to zero on Sunday, but that didn’t avert the selloff.
There are three possible market-wide circuit breakers, which regulators put in place in 2013 to ensure that declines in stocks are orderly.
If the S&P 500 index drops 7 percent or 13 percent before 3:25 p.m., trading will stop for 15 minutes. After 3:25 p.m., declines in those levels don’t halt market-wide trading. But a 20 percent market decline at any time of day halts trading for the rest of the day.
There were two trading pauses last week and one on Monday. Before that, the only time a market-wide break occurred was in 1997, under different thresholds and rules established by the SEC following a stock market crash in 1987.