The COVID crash of 2020: the fastest bear market and recovery

The COVID-19 crash was the fastest fall into a bear market in US history, and one of the fastest recoveries. The S&P 500 closed at a record 3,386.15 on February 19, 2020. Sixteen trading days later it was more than 20% lower, and on March 23 it closed at 2,237.40, down 33.9% in 33 calendar days. Market-wide circuit breakers halted trading four times in eight sessions. Then, helped by the largest policy response in modern times, the index climbed back to a new record on August 18, 2020, less than six months after the peak.

This article walks through the crash week by week, explains what the circuit breakers and the VIX showed, describes the Federal Reserve and Congressional response, and shows the whole episode on SPY's real monthly bars. It closes with what the speed of both the fall and the recovery does, and does not, teach.

Before the fall

At the start of 2020 US stocks were at record highs after a strong 2019. The new coronavirus was spreading in China and appearing elsewhere, but markets treated it as a regional problem. That changed in the last week of February, as outbreaks grew in Italy, South Korea and Iran and US health officials warned that spread in the United States was likely.

The crash, week by week

Feb 24–28. The S&P 500 fell every day and lost more than 11% for the week, the fastest 10% correction from a record high on record at the time. The Fed signaled it was ready to act.

Mar 2–6. The Fed made an emergency half-point cut on March 3, lowering its target range to 1.00–1.25%. Markets swung wildly in both directions; the cut did little to calm them.

Mar 9–13. Oil prices collapsed after Saudi Arabia and Russia failed to agree on output cuts, adding to the pandemic shock. On Monday, March 9, stocks fell 7% within minutes of the open, triggering the first market-wide halt since 1997. The World Health Organization declared a pandemic on March 11. On Thursday, March 12, a second Level 1 halt came at the open; the S&P 500 fell 9.5% and closed more than 20% below its February record, a bear market in 16 trading days.

Mar 16–20. On Sunday, March 15, the Fed cut its rate to 0–0.25% and announced $700 billion of Treasury and mortgage-bond purchases. Markets read the move as a sign of alarm. On Monday, March 16, a third halt hit at the open and the Dow closed down 12.93%, its worst percentage day since October 19, 1987. The VIX closed at 82.69, its highest close since the index began. A fourth halt came on March 18. Even US Treasury bonds, normally the safest asset, became hard to trade as investors sold everything for cash.

Mar 23. The Fed promised to buy Treasuries and mortgage securities "in the amounts needed" and created facilities to buy corporate bonds for the first time. The S&P 500 closed at 2,237.40 that day, the low of the bear market.

On SPY's monthly bars the whole crash fits into two candles. The February 2020 high was $339.08 and the March low $218.26, about 36% lower. By the end of August the monthly close was $349.31, above anything before the crash. Monthly bars compress the drama: the March candle hides daily swings of 5% to 12% in both directions.

The circuit breakers and the VIX

The four market-wide halts of March 2020 were the first under the S&P 500-based rules adopted after the The 2010 Flash Crash: what happened on May 6 and what changed, and the first market-wide halts of any kind since October 1997. Each was a Level 1 halt: a 7% fall from the previous close, a 15-minute pause, then a reopening. Three of the four came within minutes of the open. None reached Level 3, so the market never closed early.

The halts did what they were designed to do, giving traders a pause to see prices and organize orders, but they did not stop the fall. The detail, with the exact times, is in Market-wide circuit breakers: the 7%, 13% and 20% halt rules. Volatility ran at levels last seen in the 2008 crisis; how the VIX measures expected volatility is explained in Volatility and the VIX: historical vs implied volatility explained.

The policy response

The response was faster and larger than in 2008, partly because the tools already existed.

• Monetary policy. The Fed cut its rate to near zero, bought Treasuries and mortgage bonds at an unprecedented pace, and in March and April created or revived facilities to lend to businesses, states and cities, to money-market funds and, for the first time, to buy corporate bonds. Its balance sheet grew by about $3 trillion in three months. See quantitative easing.
• Fiscal policy. The CARES Act, signed on March 27, 2020, provided about $2.2 trillion: direct payments of up to $1,200 per adult, expanded unemployment benefits, and the Paycheck Protection Program of forgivable loans to small businesses. Further relief bills followed in December 2020 and March 2021.

The economy and the market part ways

The recession was severe and short. The NBER later dated it from February to April 2020, two months, the shortest US recession on record. In April 2020 employers cut more than 20 million jobs, and the unemployment rate was reported at 14.7% (later revised to 14.8%), the highest since the BLS series began in 1948.

The stock market had bottomed on March 23, before any of that data arrived. Investors were pricing the policy response and the expectation that the shutdown would be temporary, not the current headlines. The rebound was led by companies that benefited from people working, shopping and entertaining themselves at home, especially large technology firms. Travel, energy and banks lagged for much longer. In April, the front-month US oil futures contract briefly traded below zero, a sign of how uneven the shock was across markets.

The S&P 500 set a new closing record on August 18, 2020. News on November 9, 2020 that a vaccine was highly effective then sparked a rotation into the hardest-hit sectors. The index ended 2020 up about 16% on a price basis, after having been down a third in March.

What it teaches, and what it does not

• Speed is not severity. The fall was the fastest on record, but the 33.9% decline was smaller than in 2000–2002 or 2007–2009 (see The 2008 financial crisis: housing, Lehman, TARP and the 57% fall).
• Markets lead the economy. As in 2009, the low came while the news was getting worse. Waiting for the data to improve meant missing most of the rebound.
• Policy shaped the outcome. The recovery depended on an extraordinary, fast response. A future crash may not get one of the same size or speed.
• Selling in a panic is costly, and so is assuming a V. Someone who sold in mid-March missed the rebound; someone who assumes every crash recovers within months is drawing a rule from one example. The 2000 and 2008 bear markets took years.
• Liquidity can fail even in "safe" markets. The Treasury market's stress in March 2020 is a reminder that the ability to sell at a fair price is not guaranteed.

How Finabase helps

The SPY monthly chart shows the 2020 crash and recovery on the same data as the figure above. The VIX symbol page shows today's level of the volatility index, which spiked to 82.69 in March 2020; our stored index history starts in late 2021, so for 2020 we use published values. The indices page tracks the S&P 500, the Dow and the Nasdaq, and the heatmap shows how evenly or unevenly a selloff is hitting sectors on any given day.

Frequently asked questions

How much did the stock market drop during COVID?

The S&P 500 fell 33.9%, from a record close of 3,386.15 on February 19, 2020 to 2,237.40 on March 23, 2020. The Dow fell about 37% over a similar period.

How long did the COVID stock market crash last?

The decline lasted 33 calendar days, from February 19 to March 23, 2020. The S&P 500 regained its record on August 18, 2020, about five months after the low.

Why did the stock market recover so quickly in 2020?

Mainly because of the size and speed of the response: near-zero rates and massive bond buying by the Fed, Fed backstops for credit markets, and trillions of dollars of fiscal support, along with expectations that the shutdowns would be temporary and, later, vaccine progress.

How many times did circuit breakers trigger in March 2020?

Four times, all Level 1 halts of 15 minutes: on March 9, 12, 16 and 18, 2020.

Was the 2020 crash the fastest ever?

It was the fastest fall from a record high into a bear market for the S&P 500, 16 trading days. The largest single-day percentage fall remains October 19, 1987.

Summary

In February and March 2020, as COVID-19 spread, the S&P 500 fell 33.9% in 33 days, the fastest plunge into a bear market on record, with four circuit-breaker halts and a record VIX close of 82.69. The Federal Reserve cut rates to zero and backstopped credit markets, Congress passed the $2.2 trillion CARES Act, and the market bottomed on March 23, long before the economic data did. The index regained its record by August 18, 2020. The episode shows how quickly prices can move in both directions, and how much the outcome depended on an exceptional policy response.