How Does the 2020 Stock Market Crash Compare With Others?

Latest Dow declines among worst in terms of point, percentage drops

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The stock market crash of 2020 began on Monday, March 9, with history’s largest point plunge for the Dow Jones Industrial Average (DJIA) up to that date. It was followed by two more record-setting point drops on March 12 and March 16.

The stock market crash included the three worst point drops in U.S. history. The drop was caused by unbridled global fears about the spread of the coronavirus, oil price drops, and the possibility of a 2020 recession.

Only two other dates in U.S. history had more unsettling one-day percentage falls. They were Black Monday on October 19, 1987, with a 22.61% drop, and December 12, 1914, with a 23.52% fall.

Although this 2020 market crash was dramatic, it didn't last. The stock market experienced a surprising recovery, even as many areas of the U.S. economy continued to experience trouble.

Key Takeaways

  • The 2020 stock market crash began just as the World Health Organization moved to declare COVID-19 an official pandemic.
  • The Dow Jones's fall of nearly 3,000 points on March 16, 2020, was the largest single-day drop in U.S. stock market history to date.
  • In terms of percentage, it was the third-worst drop in U.S. history.
  • Unlike some previous crashes, however, the market rebounded quickly and set new records in late 2020 and early 2021.
  • Other areas of the economy have not recovered as well as the stock market has through the pandemic.

The Fall From a Record High

The 2020 stock market crash began on Monday, March 9. The Dow fell 2,013.76 points that day to 23,851.02. It had fallen by 7.79%. What some labeled as "Black Monday 2020" was, at that time, the Dow’s worst single-day point drop in U.S. market history.

On Thursday, March 12, 2020, the Dow fell a record 2,352.60 points to close at 21,200.62. It was a 9.99% drop, almost a correction in a single day. It was the sixth-worst percentage drop in history.

On March 16, the Dow hit a new record. It lost 2,997.10 points to close at 20,188.52. That day’s point plummet and 12.93% freefall topped the original October 1929 Black Monday slide of 12.82% for one session.

Prior to the 2020 crash, the Dow had just reached its record high of 29,551.42 on February 12. From that peak to the March 9 low, the DJIA lost 5,700.40 points or 19.3%. It had narrowly avoided the 20% decline that would have signaled the start of a bear market

On March 11, the Dow closed at 23,553.22, down 20.3% from the Feb. 12 high. That launched a bear market and ended the 11-year bull market that had started in March 2009. 

The chart below ranks the 10 biggest one-day losses in DJIA history.

Compare to Previous Black Mondays

Before March 16, 2020, one previous Black Monday had a worse percentage drop. The Dow fell 22.61% on Black Monday, October 19, 1987. It lost 508 points that day, closing at 1,738.74.

On Black Monday, October 28, 1929, the average plunged 12.82%. It lost 38.33 points to close at 260.64. This was part of the four-day loss in the stock market crash of 1929 that started the Great Depression.

Causes of the 2020 Crash

The 2020 crash occurred because investors were worried about the impact of the COVID-19 coronavirus pandemic.

The uncertainty over the danger of the virus, plus the shuttering of many businesses and industries as states implemented shut-down orders, damaged many sectors of the economy. Investors predicted that workers would be laid off, resulting in high unemployment and decreased purchasing power.

On March 11, the World Health Organization (WHO) declared the disease a pandemic. The organization was concerned that government leaders weren’t doing enough to stop the rapidly spreading virus. 

The stresses that led to the 2020 crash had been building for a long time. 

Investors had been jittery ever since President Donald Trump launched trade wars with China and other countries. By February 27, the Dow had skidded more than 10% from its February 12 record high. It first officially entered a correction when it closed at 25,766.64.

Effects of the 2020 Crash

Often, a stock market crash causes a recession. That’s even more likely when it’s combined with a pandemic and an inverted yield curve.

An inverted yield curve is an abnormal situation where the return, or yield, on a short-term Treasury bill is higher than the Treasury 10-year note. It only occurs when near-term risk is greater than in the distant future.

Usually, investors don't need much return when they keep their money tied up just for short periods of time. They require more when they keep it tied up for longer. But when the yield curve inverts, it means that investors require more return in the short term than the long term. The initial recession was accompanied by an inverted yield curve, spooking many investors.

On March 9, investors demanded a higher yield for the one-month Treasury bill than for the 10-year note. Investors were telling the world with this market signal how worried they were about the impact of the coronavirus.

Inverted yield curves often predict a recession. The curve inverted before the recessions of 2008, 2001, 1991, and 1981. 

Bond yields across the board were at historically low levels. Investors who sold stocks in the crash were buying bonds. Demand for bonds was so high that it drove down yields to record-low levels.

On average, bear markets last 22 months, but some have been as short as three months. The 2020 recession was followed by a booming stock market throughout the summer and fall.

By November 24, 2020, the Dow Jones was surging past 30,000 points. The market continued to climb, with the Dow above 34,000 points and the S&P 500 above 4,000 points on May 5, 2021.

How It Affects You

When a recession hits, many people panic and sell their stocks to avoid losing more. But the rapid gains in the stock market made after the crash indicated that in 2020, many investors continued to invest, rather than selling.

Of the top 20 days with the highest daily point gains in the history of the Dow Jones Industrial Average, 14 of them were in 2020. Investors who had continued to invest through the recession, or who had left their investments alone, saw record gains in their portfolios.

In a surprise move on March 15, 2020, the Federal Reserve cut its benchmark interest rate a full percentage point to zero. It also launched a bond-buying program, referred to as "quantitative easing," to mitigate the expected damage to the U.S. economy from the coronavirus pandemic.

Strong demand for U.S. Treasurys lowered yields, and interest rates for all long-term, fixed-interest loans follow the yield on the 10-year Treasury note.

As a result, interest rates on auto, school, and home loans also dropped. This made it less expensive to get a home mortgage or a car loan in both 2020 and 2021.

However, the gains were not distributed equally across the economy, and the booming stock market did not necessarily indicate a full recovery. While investors made substantial profits throughout 2020 and into 2021, workers did not fare as well.

Unemployment rose sharply at the beginning of the pandemic, to 14.8% by April 2020. While it fell sharply over the coming months, it did not return to pre-recession levels. By March 2021, national unemployment was at 6.0%.

Unemployment remained even higher in some sectors of the economy most affected by the pandemic, such as hospitality and childcare. White-collar and information workers were more likely to be able to work from home and less likely to experience unemployment.

What Comes Next?

The 2020 stock market crash was followed by a recession. That, however, was followed by a substantial but unevenly distributed recovery.

The federal government, under both the Trump and Biden administrations, passed multiple bills to stimulate the economy. These included help directed at specific sectors, as well as cash payments to taxpayers, increases in unemployment insurance, and rental assistance.

These measures further encouraged investors, leading to additional gains in the stock market. Investors were also encouraged by the development of multiple COVID-19 vaccines, which had begun under the Trump administration.

Vaccine eligibility was initially restricted to specific groups by age or health status. However, in March 2021, President Biden directed states and territories to make all adults eligible to receive vaccines by May 1, 2021.

As more adults receive vaccinations, more sectors of the economy can return to normal operations. This could lead to further drops in unemployment as jobs open up one more to low-income and wage workers.

The driving forces behind the stock market crash of 2020 were unprecedented. However, investor confidence remained high, propelled by a combination of federal stimulus and vaccine development.

Though unemployment remains a significant economic problem in 2021, the stock market continues to reach record highs. This could signal either increased economic growth and the potential for falling unemployment, or the end of a stock bubble as gains level off and prices return to more normal levels.