It's up what, 30 % over the last few months? The real economy didn't grow nearly that much.

In terms of real value, the only way for the economy to take that degree of a hit in a day would be a natural disaster. But these numbers are mostly speculation, so yeah they can go up and down very fast minus techinal restrictions like these halts.

S&P500 has wiped out all growth from 2019 at the moment and is headed lower.

Yes, correct. I should have clarified, before things started crashing, we were up 30% in a few months.

I'm going to say it. It can't possibly collapse 20% in one day... can it?

Based on the rules it cannot drop _more_ than 20% in a day :-)

There are examples of it happening in other countries though. Zimbabwe and Argentina come to mind for some crazy inflation and stock numbers.

> Based on the rules it cannot drop _more_ than 20% in a day

Asset pricing is not continuous. A single trade can take pricing from -18% to -X%, with X having any value between infinity and -100.

The breaker triggers at -20%. If the market crosses at -18% and then trades -25%, that trade will cross and then trip the breaker.

Looks like it's only happened once, 22.61% on Oct 19, 1987.

Even the 1929 crash wasn't that much, though it did drop about 24.5% over two days, Oct 28 and 29, 1929.

https://en.wikipedia.org/wiki/List_of_largest_daily_changes_...

The crash in 1987 is why they put these halting rules in place.

not exactly - circuit breaker was put in place after the 1987 crash, but the 3-tier system (7-13-20) went into effect only in 2013: https://www.wikiwand.com/en/Trading_curb

I don’t believe this is correct.

My understanding is that these automatic limit down rules were added in response to the flash crash in 2010, during which the Dow Jones lost 1000 points over the course of minutes.

This is incorrect, it was somewhere during/after the 2008 recession that these circuit breakers went into effect (because I remember they didn't exist at that time)

That's about how much it collapsed on Black Monday in 1987, so, yes, it can.

Wouldn't that incentivize people to sell before the pause/end of the trading day, creating a snowball effect?

It would indeed, but if it's an irrational panic or an algorithmic mess-up it also allows people to stop and think for a bit. It's a tradeoff, and the main goal is to reduce the extreme failures.