Today’s more than 12 per cent plunge marked the single biggest one-day drop on the TSX, in percentage terms, since May 1, 1940 when it fell more than 25 per cent.
Canada’s main stock index ended the day down 1761.64 points to 12,508.45 after opening down 7.5 per cent. The TSX came close, but didn’t hit the 13 per cent drop threshold to trigger another halt.
Brian Madden, senior VP and portfolio manager at Goodreid Investment Counsel, says supply and demand for securities is out of whack.
“Normally prices adjust calmly and mildly to new information, as traders process and digest value-relevant information rationally and supply/demand imbalances are brief and mild,” Madden told Yahoo Finance Canada.
“That is not the current reality. Traders are not processing information rationally. Supply/demand imbalances are large and price jumps are correspondingly large and the market is in a temporary state of panicky dis-equilibrium.”
LEVEL 1 MARKET-WIDE CIRCUIT BREAKERS TRIGGERED: At the instruction of IIROC, TSX, TSXV and TSX Alpha have been halted due to the triggering of a level 1 market-wide circuit breaker. Markets are now in Pre-Open state and are set to resume trading at 09:51:00.
— TMX Group (@TMXGroup) March 12, 2020
The TSX was down around 11 per cent when trading resumed at around 9:51 a.m. ET.
Where we go from here
Peter Hodson, founder and head of research at 5i Research, says there’s room to fall further until maximum pessimism sets in.
“This weekend all the individual investors may sit and stress for 48 hours, perhaps culminating in a big blow-off next week,” Hodson told Yahoo Finance Canada.
“A bounce is setting itself up, and it should be a good one. There is still going to be a recession, however, so traders need to be nimble.”
Brooke Thackray, research analyst at Horizons ETF Management Canada, says the TSX falling below 13,000 was a key technical level.
“The next key level of support is 11,843 which is the low set in late January 2016. A break below this level would be demoralizing for investors in the Canadian market and could put further negative pressures on the Canadian stock market,” Thackray told Yahoo Finance Canada.
“The last time that the S&P/TSX Composite Index traded below the 11,843 level was in 2013.”
Poor handling of COVID-19
Circuit-breakers also kicked in on U.S. markets, but have since resumed trading. The next 15-minute halt would come if losses hit 13 per cent.
The S&P 500 index has declined by 7%, triggering a Level 1 Market Wide Circuit Breaker trading halt. US equity markets will resume after 15 minutes.
— NYSE 🏛 (@NYSE) March 12, 2020
The TSX officially entered bear market territory yesterday after closing down more than 20 per cent below its recent high, which was reached on February 19. Today’s trading brought the TSX down to 2016 levels.
Losses started overseas on European and Asian markets after President Donald Trump and other lawmakers failed to calm markets after restricting travel from Europe.
“Trump's travel ban from Europe is likely the last straw. A recession, which was previously unlikely is now a high probability,” Darren Sissons, vice-president and partner at Campbell, Lee & Ross, told Yahoo Finance Canada.
Sissons says patience is key and investors shouldn’t panic.
Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.