Stock Exchange: Will Wall Street have to resort to Circuit Breakers?

The stock market panic on Monday 7 April 2025 could trigger a stock market crash in New York. But since Black Monday in 1987, safeguards have been in place. Will the Circuit Breakers need to be activated?

On 19 October 1987, the Dow Jones fell by 22%. Furthermore, due to panic caused by the falling prices, the computers of that time were unable to process all the orders and payments in real time. Especially those from automatic buying and selling systems, which weren't as efficient as they are now. This technical shortcoming further amplified the crisis. Was this the famous "Black Monday" that serves as a reference before that of 2025? Following the 1987 stock market crash, systems were implemented to prevent such a collapse. These are the Circuit Breakers.

How does it work?

A stock market Circuit Breaker is a temporary or permanent halt to trading on stock exchanges once a certain level of index decline is reached, in the United States this applies to the Dow Jones or the S&P 500 (500 benchmark stocks from the 500 largest American companies). The principle is as follows: if one of these indices faces a decline exceeding a predefined threshold compared to the opening (-7%), trading is automatically halted for 15 minutes to calm the situation. If the decline continues to reach the threshold of -13%, the session is frozen again for a quarter of an hour. But if, despite this, the drop reaches -20%, the stock exchange closes for the rest of the day. This is the level 3 Circuit Breaker.

Permanent decline

A crash of -22% in a single day is no longer possible on Wall Street with the Circuit Breakers. However, this doesn't prevent a continuous decline over several days. Thus, if the New York Stock Exchange were to collapse this Monday, 7 April, it would add to the declines observed since Wednesday, 2 April. In 5 days, the Dow Jones has lost more than 7%. Therefore, the cumulative decline could approach or exceed -20%. And if markets continue to lose confidence, we will straightforwardly enter a global recession. Taking medicine when you’re sick is good. When things weren't so bad, with a growing economy in 2022, 2023, and 2024, it's dangerous.

(MH with Olivier Duquesne – Sources: Le Soir, Wikipedia & Binance Academy – Picture: © Unsplash)