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The COVID crash of 2020: a 34% fall in 23 days, then a record
In February 2020, US stocks hit a record. Just 23 trading days later, the S&P 500 was down 34%. Then, against almost every forecast, it was back at a new high by August.
The world before the crash
At the start of 2020, the US economy looked steady. Jobs were plentiful. Stocks had risen for more than a decade since 2009.
News of a new virus in China had been around since January. Most markets treated it as a faraway problem.
On 19 February 2020, the S&P 500 closed at a record 3,386.15.
What happened
Within days, the virus was spreading fast in Italy, Iran and South Korea. It became clear it wouldn't stay far away.
Stocks started to fall in the last week of February. Then they fell faster.
In March, the news came almost every day:
- Oil prices crashed after Saudi Arabia and Russia clashed over production.
- On 11 March, the World Health Organization called COVID-19 a pandemic.
- Sports leagues stopped. Schools closed. Whole cities began to lock down.
- On Sunday 15 March, the Federal Reserve cut its key interest rate to near zero.
None of it stopped the selling at first.
The moment everyone remembers
US stock markets have circuit breakers: if the S&P 500 drops 7% from the day before, all trading stops for 15 minutes. They're meant to give everyone time to breathe. See circuit breaker.
Under the current rules, set in 2013, the market-wide breaker had never been triggered. The last market-wide halt had been back in October 1997. Then it fired four times in eight days: on 9, 12, 16 and 18 March 2020.
Monday 16 March was the worst. The breaker tripped seconds after the open. By the close, the Dow had fallen 12.9%, its second-worst day in percentage terms after Black Monday in 1987. The S&P 500 fell about 12%.
That day, the VIX, often called Wall Street's "fear index", closed at a record high.
On 23 March, the S&P 500 closed at 2,237.40, about 34% below its February peak. That same day, the Fed said it would buy bonds in whatever amounts were needed. Four days later, Congress passed the CARES Act, a $2.2 trillion relief package.
The comeback
The bottom came on 23 March. Few saw it at the time.
Stocks rose through April and May, even while the economic news got worse. Jobless claims hit records. Businesses shut. And still the market climbed, pulled up by low rates, government support and hopes for a vaccine.
On 18 August 2020, the S&P 500 closed at a new record high, less than six months after the peak.
What it teaches
1. Volatility changes the size you should trade
In March 2020, the S&P 500 often moved 5% or more in a day. On a normal day, it moves a fraction of that. If your stop is set from the chart, the stop has to be wider on wild days. A wider stop means a smaller size to keep the same risk. That's volatility in practice.
The position size calculator does the math: same 1% risk, wider stop, smaller size.
2. A daily limit protects you from the wildest days
On days like 16 March, prices could swing several percent in an hour, in both directions. A daily loss limit means two bad trades end the day, no matter how tempting the next move looks.
On days when circuit breakers fire, the honest beginner move is often to watch, not trade. Days like this are rare. There will be calmer ones.
3. The news and the chart can disagree
In April 2020, the news was awful and stocks rose anyway. Markets look ahead. Reading what price is doing, higher highs and higher lows, tells you more than the headlines do. See how to identify a trend.
4. A losing streak doesn't last forever, but your account has to
Many people who sold at the bottom, or were forced out by margin calls, missed the rebound. Staying small enough to stay in the game matters more than catching the exact turn. Read how to handle a losing streak.
What it doesn't mean
- It doesn't mean every crash bounces back in months. After 1929 the Dow took 25 years. After 2000 the Nasdaq took 15. 2020 was unusually fast, helped by huge government support.
- It doesn't mean "always buy the dip". Nobody knew 23 March was the bottom until well after.
- It doesn't mean circuit breakers stop markets from falling. They pause trading. Prices can fall again after the pause, and they did in March 2020.
- It doesn't mean the crash was harmless. Many people lost jobs, businesses and loved ones. The market's recovery was not everyone's recovery.
Timeline
| Date | Event |
|---|---|
| 19 Feb 2020 | S&P 500 closes at a record 3,386.15 |
| Late Feb 2020 | Stocks start to fall as the virus spreads |
| 9 Mar 2020 | First 7% circuit breaker; oil prices crash |
| 11 Mar 2020 | WHO declares a pandemic |
| 12 Mar 2020 | Second circuit breaker |
| 15 Mar 2020 | Fed cuts rates to near zero |
| 16 Mar 2020 | Third circuit breaker; Dow falls 12.9% |
| 18 Mar 2020 | Fourth circuit breaker |
| 23 Mar 2020 | S&P 500 bottoms at 2,237.40, about 34% down |
| 27 Mar 2020 | CARES Act signed |
| 18 Aug 2020 | S&P 500 closes at a new record high |
Questions
How much did the stock market drop during COVID?
The S&P 500 fell about 34% from its record on 19 February 2020 to its low on 23 March 2020.
When did the stock market bottom in 2020?
On 23 March 2020, when the S&P 500 closed at 2,237.40.
How many times did circuit breakers trigger in 2020?
The market-wide 7% circuit breaker triggered four times in March 2020: on the 9th, 12th, 16th and 18th.
How long did the market take to recover from the COVID crash?
The S&P 500 reached a new record close on 18 August 2020, less than six months after its February peak.
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