Contracts on the S&P 500 have dropped 5% tonight, reaching a “limit down” band made by the CME futures exchange to prevent further losses.
* No prices can trade below 5%, only at higher prices than “limit down.”
* Dow futures plunged more than 1,000 points, also triggering the limit down level.
Central banks fired all their weapons to stop markets from declining, but U.S. stock futures are locked limit down. The central bank “put” no longer works.
The other titanic force is world central banks and governments going “all in” to keep markets from falling further. They have effectively done everything they can.
It’s possible that if risk markets make new lows, regulators and government officials may have no choice but to close the financial markets.
Goldman Sachs has already revised its Q2 GDP forecast to -5%.
Margin calls will force involuntary liquidation. The inability to properly price illiquid securities like high yield bonds and emerging market securities may prompt funds to halt redemptions.
There are now some worse case scenarios being bandied about. We’ll soon see how bad it does or doesn’t get.
I’ll see you all before the market opens.