COULD A STOCK MARKET SHUTDOWN BE NEXT?

CIRCUT BREAKERS TRIGGERED AT OPEN

Market regulators and exchange executives denied the possibility of temporarily shutting down North American markets on Monday as U.S. stocks underwent a historic selloff.

The Dow Jones Industrial average lost more than 12 per cent and closed down 2,997 points — a record drop — and has now lost 31 per cent since reaching its 52-week high in February. The S&P wiped out its gain in 2019 and is now down almost 30 per cent from its all-time high. It was the biggest rout on Wall Street since 1987. The S&P/TSX Composite Index, meanwhile, lost more than 1,355 points or nine per cent.

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.

Equities opened sharply lower after the U.S. Federal Reserve slashing its benchmark rate to between 0 and 0.25 per cent on Sunday failed to comfort investors worried about the damage the spread of the coronavirus is doing to economies.

The rout deepened in late afternoon when President Donald Trump warned the economic disruption from the virus could last into summer and said the economy could fall into recession.

The latest leg of the selloff has led to widened calls for officials to explore temporarily shutting down the markets until more is known about the damage 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 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 U.S. SEC chair 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 shut down 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.

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.

The closure may have only delayed the inevitable: When the Chinese markets reopened on Feb. 2, the Shanghai Composite fell more than seven per cent. The Dow suffered a similar fate following 9/11 and had what was then a record loss of 684 points.

David MacNicol of MacNicol and Associates has worked through the financial crisis in 2008, the tech bubble 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.”