The 2020 stock market crash was related to the coronavirus pandemic that spread from China in late December and early January to much of the world in February and March. In order to mitigate the spread of the virus, large parts of the economy were shut down especially in travel related industries. This led to enormous stock market volatility starting in late February.
As can be seen in the following graphic, the ups and downs swings starting in late February and much of March dwarfed the up and down moves from earlier in the year.
During the 2020 volatility, a major indicator of falling stocks was the collapsing yields in the U.S. Treasury market. Collapsing yields infers that money is flowing into treasuries. Treasuries are often viewed as a safe haven asset during times of market volatility. Yields on instruments such as the 10-year Treasury dropped well under 1% to historic lows during the 2020 stock market crash. This is indicative of money flowing out of stocks and into “safer” treasuries and thus driving yields lower and lower.
2020 stock market crash timeline:
- February 19, 2020: The S&P 500 hits its all-time high of 3,393.52.
- Late February: The early correction. With the coronavirus spreading, stocks began dropping in late February. The situation was exacerbated by the price of oil plummeting. With enormous oil supply and production still online and demand dropping due to the shutdowns in China as they fought the spread of the virus, OPEC members failed to reach an agreement to reduce production. This caused the price of oil to see very heavy drops. As cruises began getting canceled, air travel began getting restricted and now energy companies being put under major pressure with very low oil prices, more parts of the U.S. economy begin getting hit.
- End of February: The S&P 500 closes February at 2,954.22, down nearly 13% from its all-time high on February 19.
- March 3, 2020: The Federal Reserve announces a 50 basis point cut in the federal funds rate during an emergency meeting.
- March 15, 2020: The Federal Reserve cuts interest rates effectively to zero by lowering the federal funds rate to its zero bound. The Fed also relaunches quantitative easing in an attempt to ease credit market concerns and provide ongoing liquidity into the markets.
- Middle of March: The stock market saw unprecedented volatility with the Dow Jones Industrial Average seeing regular moves of 1,000 points in both directions (see chart above). The stock market saw the greatest single day drop on a percentage basis since the 1987 stock market crash only to seemingly have an even bigger drop a few days later. On March 24, 2020, the Dow Jones Industrial Average posted a 2,112 point gain, its largest ever, on the hopes of a pending massive stimulus bill from the Federal government.
- March 26, 2020: Initial unemployment claims surged to 3.283 million for the week ending March 21, 2020. The previous record was 695,000, so this jump in claims was an unprecedented increase indicative of the severity of the economic shutdown as a result of the coronavirus pandemic.
The coronavirus epidemic of 2020 is largely responsible for the 2020 stock market crash. While growth was slowing somewhat in the United States at the end of 2019, most economists view the United States economy as reasonable strong and healthy. As the coronavirus spread to all parts of the world including the United States, governments had to take action to combat the spread of the virus. These actions had a tremendous impact to the economy and was largely the “trigger” for the 2020 stock market crash. Since the coronavirus is so central to the 2020 crash, let’s outline the coronavirus timeline here:
- Late December, 2019: The first news of a virus in Wuhan, China is reported.
- January 11, 2020: China reported its first death from the new Wuhan virus.
- January 20, 2020: The first case in the United States is reported. A man in Washington State who had recently traveled to Wuhan, China.
- January 23, 2020: China cuts off and locks down Wuhan in an attempt to limit the spread of the virus.
- January 31, 2020: President Trump restricts travel from China to the United States.
- February 21, 2020: A coronavirus outbreak begins in South Korea, largely tied to an outbreak within a church that has ties to China.
- February 23, 2020: Italy sees a surge in coronavirus cases.
- February 29, 2020: The United States has its first coronavirus related death.
- March 11, 2020: Minutes before an NBA game was about to begin, Utah Jazz’s Rudy Gobert was confirmed to have the virus. Within minutes, the NBA suspends its season. This moment is a very important moment as it is considered to be the moment when the coronavirus “got real” for a majority of Americans. After the NBA announcement, shutdowns accelerated across many parts of life.
- March 11, 2020: President Trump blocks most visitors from Europe.
- March 13, 2020: President Trump declares a national emergency.
- March 15, 2020: The CDC recommends no gatherings of 50 or more people.
- March 19, 2020: The United States has more than 10,000 active coronavirus cases (worldometer).
- March 22, 2020: The New York Times says that New York City is now the epicenter of the coronavirus epidemic accounting for approximately five percent of the world’s cases (NYT).
- March 24, 2020: The United States has more than 50,000 active coronavirus cases (worldometer).
At the time of the stock market crash, the United States economy had not yet entered a recession. Though it’s worth noting that recessions are identified after the fact when economic data is released. As of late March, most economists assumed that the United States is in fact in a recession despite the fact that the public will not know that it was a recession until the data comes out later.
Why does a stock market crash indicate, predict or cause a recession? There are a number of factors. First, the stock market crashing is often looking ahead to economic realities. While not perfectly accurate, the market can often predict well the onset of a recession. By looking forward to collapsing corporate profits caused by unemployment and lower spending both at the consumer and business levels, the stock market can predict a recession by its falling values.
Moreover, a stock market can help cause a recession by what’s known as the wealth effect. Just as rising stock market prices and 401(k) account balances can make consumers feel wealthier and thus spend more money, the opposite can hold true as well. When individuals see the declines in their investment accounts, it can make them hold on to their cash more which then hurts businesses and the economy.
Due to the nature of the 2020 stock market crash, we’ll undoubtedly experience a severe recession. The stock market crash was to a large degree caused by the massive economic shutdown that was needed to combat the spreading coronavirus. This same shutdown is going to result in a major drop in economic activity and negative economy growth for at least a quarter or two. By late March, most economists viewed the 2020 recession as inevitable. The question that remained was more the duration and how long it would take until the economy returned to positive growth.
Frequently Asked Questions about the 2020 stock market crash
What was the stock market’s high prior to the crash?
The S&P 500 hits a high of 3,393.52 on February 19, 2020.
What caused the 2020 stock market crash?
The 2020 stock market crash was mostly caused by the spreading coronavirus pandemic from China into the rest of the world, and the economic shutdown that occurred as governments attempted to battle the spread of the virus. In the beginning, travel, airlines and cruise lines were shutdown, but as the virus spread, county, state and even country level shutdowns occurred of non-essential businesses.
What was the low of the 2020 stock market crash?
The low in the S&P 500 was 2,237.40 on March 23, 2020.