It appears that the markets couldn’t get much worse. What with COVID-19 pushing markets to the lowest points in months, if not years, investors were shocked to see a plummet on the morning of March 9.
In response to the near cataclysmic downfall, the Investment Industry Regulatory Organization of Canada (IIROC) called a “circuit breaker” trading halt. So what exactly happened, and what’s next for the TSX?
Why the crash?
The markets reacted Monday morning after some major news over the weekend. First of all, COVID-19 continued to spread throughout the world. Those dying of the illness in Italy spiked over the weekend, with the country announcing a lockdown of its 16 million people in the north of the country.
This is where much of the manufacturing and financial industries lie, and analysts expect the country to be pushed into a recession amid the news.
On Sunday, the price of oil sank about 20% after two issues. Russia refused to bring down its oil production, and Saudi Arabia went a step further and announced it would increase its oil output. This news devastated the price of oil and gas stocks, where energy companies will struggle to make ends meet with such low oil and gas prices.
What is a trading halt?
According to the IIROC, a trading halt happens when surveillance staff believe information coming in could “significantly impact the price of the security.” Although the halt isn’t permanent, it puts a pause in trading so that the markets can’t blindly react, giving investors time to process the new information.
That way, if I read the news about Saudi Arabia at 10 a.m. rather than you who read it at 8 a.m., you don’t receive an unfair advantage of selling your stocks ahead of me.
Trading usually resumes quickly, but the oil and gas industry remains at a trading halt as of writing.
What next?
Even when trading resumes, it’s not exactly going to go back to where it was before the halt. Markets are likely to still slump toward bear market territory, according to analysts. Canada should expect to be seriously hit as the world’s fourth-largest producer and fourth-largest exporter of oil.
The product takes up a whopping 11% of Canada’s gross domestic product, so lower prices will severely hurt the economy — and thus the stock market.
The TSX has dropped about 9.5% as of writing between Friday and Monday. The markets haven’t sunk this low since the 2008 recession, where it sunk about 44% before starting an upturn.
By comparison, the TSX has fallen about 14% since reaching an all-time high in September. That dip has been overdue for a while now. But history repeats itself, and even during the 2008 crash, markets eventually rebounded.
That’s why analysts are recommending you stay put with your investments. Don’t panic and sell off everything, but don’t buy up stocks right now either.
In that sense, give yourself a trading halt. Give the market some time to recover, and find out for yourself what’s going on, then make a well-researched, rational decision.
