There’s no other way around it — on Monday morning, a large portion of the U.S. ETF market experienced a structural crash.  How else would you categorize it when an ETF like the S&P 500 equal-weighted “RSP” fell 43% on decent volume and took over 30 minutes to recover?  This ETF tracks the 500 stocks in the S&P 500 on an equal-weighted basis instead of on a cap-weighted basis, and its underlying index was down well under 10% at its lows on Monday morning.  Other U.S.-index tracking ETFs fell 30%+ as well.  The S&P Smallcap 600 “IJR” fell 30% at its lows, while the Smallcap 600 Growth “IJT” fell 34%.  Even the Nasdaq 100 ETF “QQQ” was down 17.25% at one point, while its underlying index was down just 9% at its lows.

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Below is a look at our key ETF matrix that shows the recent performance of various asset classes.  In this matrix, we highlight the one-day performance (%) of ETFs at their lows on Monday morning, their performance from their lows on Monday morning to their closing levels that day, and their performance from their lows on Monday morning through today.  RSP is now up 75% from its lows!

It’s worrisome that the ETF asset class could experience such extreme drops given how big the market has become.  We strongly recommend against keeping active stop orders in the market unless you fully expect them to get hit, and avoid “market orders” at all times unless you’re monitoring the bid/ask spreads very closely.  Lots of people got burned on Monday morning, and if you were one of them, you likely could have dodged it by following these two rules.

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