Recently, I’ve noticed that many people have been discussing the U.S. stock market circuit breakers, so I decided to organize my observations about the market over the years.

Speaking of the U.S. stock market circuit breakers, they’re essentially like the circuit breaker in your home. When the current becomes too high, the breaker trips immediately to protect the circuit. In the same way, this mechanism in the U.S. stock market is designed to hit the pause button when investor sentiment overreacts or when the market experiences major swings. It gives everyone time to cool down and reassess the situation, instead of being swept up by panic and blindly selling.

The U.S. stock market circuit breakers are divided into three levels. A 7% drop in the S&P 500 index triggers Level 1, and trading is halted for 15 minutes. A decline to 13% triggers Level 2, with a 15-minute halt as well. If it falls to 20%, that’s Level 3—trading stops for the day. This system has been in place since 1988, and it has been triggered several times up to now.

What stands out most for me was the period in 2020. When the COVID-19 pandemic broke out and panic spread around the world, the U.S. stock market circuit breaker was triggered four times within a single month. At that time, international oil prices were also plummeting. Negotiations between Saudi Arabia and Russia fell apart, and increased oil production caused oil prices to collapse—this directly lit the fuse for the stock market. On top of the pandemic’s impact across industries, corporate revenues declined, unemployment surged, investors’ concerns about an economic recession skyrocketed, and they rushed to seek safety, triggering a chain reaction of selling. During that time, Warren Buffett had only seen the U.S. stock market circuit breaker triggered 5 times in his lifetime, yet we experienced 4 times in a single year—that’s truly astonishing.

In fact, the original intention behind the U.S. stock market circuit breaker mechanism is a good one: to ease market sentiment and prevent excessive volatility. But interestingly, sometimes it can have the opposite effect. When the market is approaching the circuit breaker thresholds, some investors become even more anxious—worried that once triggered, they won’t be able to sell in the short term—so they end up speeding up their selling, which in turn worsens volatility. So, the impact of circuit breakers can be both good and bad; it still needs to be viewed comprehensively.

Historically, the most famous case is Black Monday on October 19, 1987, when the Dow Jones Industrial Average plunged 22.61% in a single day. That disastrous crash directly helped bring about the creation of the U.S. stock market circuit breaker system. Later, it was triggered again during the 1997 Asian financial crisis, and then, of course, the four times in 2020.

So, will the U.S. stock market circuit breakers appear again in the future? To be honest, it’s hard to predict. Usually, what drives circuit breakers is a sharp rise in investors’ panic about the capital markets. Events like black swan incidents, sudden policy changes, or a shift from expectations when the market reaches a peak can all trigger them. Under the current macroeconomic conditions, concerns about a recession still exist, so the possibility of being triggered again cannot be ruled out.

If the U.S. stock market circuit breakers really happen, my advice is not to panic excessively. Following the cash as king strategy, protecting your principal and ensuring capital liquidity are the most important. When market volatility is intense, good investment opportunities are actually scarce. Look ahead in the long term and make sure you have the ability to keep investing—that’s the way to deal with it. After all, it’s often the people who can hold onto their principal who make it to the end.