How Does the 2020 Stock Market Crash Compare With Others?

The early pandemic declines were among the worst ever

Young traders analyzing computer data
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The stock market crash of 2020 began on Monday, March 9, with history's most significant point plunge for the Dow Jones Industrial Average (DJIA) up to that date. Two more record-setting point drops followed it 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.

Although the 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 declared COVID-19 an official pandemic.
  • The Dow Jones' fall of nearly 3,000 points on March 16, 2020, was the largest single-day drop in U.S. stock market history.
  • Unlike some previous crashes, however, the market rebounded quickly and set new records in late 2020 and early 2021.

The Fall From a Record High

Prior to the 2020 crash, the Dow reached a record high of 29,551.42 on Feb. 12. The 2020 stock market crash began on Monday, March 9, with the Dow falling 2,013.76 points to 23,851.02 (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 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.

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.

On March 16, the Dow placed another record, losing 2,997.10 points to close at 20,188.52. That day's point plummet topped the original October 1929 Black Monday slide of 12.93% for one session.

From the peak on Feb. 12 to March 16, the DJIA lost 9362.90 points, a 31.7% drop.

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

Compare to Previous Black Mondays

Before March 16, 2020, two previous Black Mondays had worse percentage drops. The Dow fell 22.6% on Black Monday, Oct. 19, 1987.

On Black Monday, Oct. 28, 1929, the average plunged nearly 13%. 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 shutdown 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 Feb. 28, the Dow had skidded more than 14% from 29,551 on Feb. 12 to 25,409 on Feb. 28. It first officially entered a correction—over a 10% drop—when it closed at 25,766 on Feb. 27.

Effects of the 2020 Crash

Often, a stock market crash causes a recession. That's even more likely when 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 the near-term risk is greater than in the distant future.

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

On March 9, 2020, investors demanded a higher yield for the one-month Treasury bill than 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 in the summer and fall.

By Nov. 24, 2020, the Dow Jones was surging past 30,000 points. The market continued to climb and set records, with both the S&P 500 and the Dow reaching record highs on Jan. 3 and Jan 4, 2022, respectively.

How It Affected Investors

When a recession hits, many people panic and sell their stocks to avoid losing more. But the rapid gains in the stock market after the crash indicated that throughout 2020 and 2021, many investors continued to invest rather than sell.

Recessions can be good or bad for investors. Whether they survive a market downturn depends on how they invest and control their emotions. A glance at the S&P 500 and Dow Jones charts indicates that investors continued to invest throughout the short recession and beyond. If they hadn't, prices wouldn't have climbed as quickly as they did, and the recession might have lasted longer.

In March 2020, the Federal Reserve reduced its target rate range for federal funds to zero. As a result, interest rates on auto, school, and home loans also dropped, which 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 remained even higher in some sectors of the economy that were most affected by the pandemic, such as hospitality and child care. White-collar and information workers were more likely to be able to work from home and less likely to experience unemployment.

Unemployment rose sharply at the beginning of the pandemic, from 3.5% in February to 14.7% by April 2020. While it fell sharply over the next year, it took until March 2022 for the national unemployment rate to reach 3.6%.

Actions That Reduced the Length of the 2020 Recession

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

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

These measures further soothed investors, leading to additional gains in the stock market. Investors were also encouraged by the development and distribution of multiple COVID-19 vaccines, which began 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.

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.

Frequently Asked Questions (FAQs)

What is a stock market crash?

A stock market crash is when a market index drops catastrophically in one or a few days of trading. A crash is usually the result of a negative event that sparks a sudden bout of stock sales. Crashes often lead to a bear market, which is when a market experiences a total decline of 20% or more.

What is Black Monday?

Black Monday was Oct. 19, 1987. The Dow Jones Industrial Average lost more than 20% in a single day, triggering a global stock market decline. No single event caused the decline. Instead, it was caused, at least in part, by computer orders, which were relatively new at the time. It may have also been due to an overextended bull market that was due for a correction and portfolio insurance, which involved institutional investors hedging their stock portfolios by taking short positions in the S&P 500.

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