U.S. investors were jittery on Monday morning after fears of an economic slowdown had rocked markets around the world.
Their concern was realized when the Standard & Poor’s 500 Index plunged 5.3 percent in the opening minutes of trading, the biggest intraday loss in four years. It was the start of a roller-coaster ride, as the market bounced up only to fall again. The pattern repeated through the day until the close, when the benchmark finished down 3.9 percent.
Along the way there were wild price swings, trading halts and volatility at levels not seen in years. Things got so bad that former Treasury Secretary Larry Summers took to Twitter to compare the day’s events to previous meltdowns and say, “we could be in the early stage of a very serious situation.”
As investors ponder what it all means, we answer some of the day’s biggest questions.
Was it a flash crash?
The rout on May 6, 2010, was dubbed the flash crash, and it was a shock. Out of nowhere, the stock market lost almost $1 trillion in value before almost immediately recovering most of its losses. While prices fell rapidly Monday, it appeared to be a fair reflection of investor sentiment: Indexes were falling worldwide, led by an 8.5 percent plunge by China’s Shanghai Composite Index, amid concern that the global economy is worsening. There’s also worry that the Federal Reserve will soon raise interest rates, which some think could snarl the six-year bull market for stocks. Reflecting that pessimism, the S&P 500 ended the day with its biggest loss since August 2011. The morning’s plunge wasn’t just a head fake.
Didn’t some stocks crash?
Many stocks opened low, including General Electric Co. and JPMorgan Chase & Co. Within minutes, things got much worse and both GE and JPMorgan were briefly down as much as 21 percent.
What protections were in place?
After the 2010 flash crash, a system of curbs were introduced that are meant to prevent errant trades from driving down prices. Traders aren’t supposed to quote prices outside a certain percentage above and below a stock’s average price. This restriction didn’t kick in for GE, JPMorgan and other stocks early Monday possibly because the acceptable price bands are wider in the first few minutes of the day. The losses -- though big -- weren’t big enough. By the end of the day, GE and JPMorgan were down by less eye-catching amounts: 2.9 percent and 5.3 percent, respectively.