What led up to it
Share markets began 2020 near record levels after a long rise. A new coronavirus had been identified in China at the turn of the year, but until late February markets treated it mainly as a regional problem.
That changed when large outbreaks appeared in Italy, Iran and South Korea. It became clear that the virus would spread widely and that governments would close large parts of their economies to slow it. Nobody had a model for that: the question was not how much profits would fall but how long whole industries would have no revenue at all.
Many funds and companies responded by trying to raise cash at the same moment. In March that produced strain even in the market for United States government bonds, normally the easiest of all assets to sell.
What happened, in order
- 19 Feb 2020The S&P 500 closes at a record high.
- 24–28 Feb 2020Outbreaks in Italy and elsewhere show the virus spreading beyond Asia. United States shares have their worst week since 2008.
- 3 March 2020The Federal Reserve cuts interest rates by half a percentage point at an unscheduled meeting.
- 9 March 2020The oil price falls steeply after talks between oil-producing countries break down. In New York a market-wide circuit breaker halts trading, for the first time since 1997.
- 11–12 March 2020The World Health Organization declares a pandemic on 11 March. On 12 March trading in New York is halted again.
- 15–16 March 2020On Sunday the Federal Reserve cuts rates to a range of 0% to 0.25% and announces bond purchases. On Monday trading is halted a third time and the Dow falls 12.9%, its largest one-day percentage fall since 1987.
- 23 March 2020The S&P 500 closes at its low, about 34% below the February peak. The Federal Reserve announces that its bond purchases will have no set limit, and new lending programmes.
- 27 March 2020The United States enacts the CARES Act, a relief package of about $2.2 trillion.
- 20 April 2020With storage almost full, the expiring futures contract for American crude oil settles at −$37.63 a barrel: sellers pay buyers to take delivery.
- 18 Aug 2020The S&P 500 closes at a new record, six months after the last one.
What changed afterwards
- The circuit breakers written after 1987 and revised after 2010 were used four times in eight trading days, on 9, 12, 16 and 18 March, and worked as designed.
- Central banks acted faster and on a larger scale than in 2008. The Federal Reserve cut rates to near zero, bought bonds without a set limit and reopened dollar swap lines with other central banks. The Bank of England cut its rate to 0.1% on 19 March.
- The strain in government bond markets and the withdrawals from money-market funds in March 2020 were examined by the Financial Stability Board and national regulators. The United States adopted further reforms of money-market funds in 2023.
- Exchanges and brokers revised their systems and rules to allow for negative prices in commodity futures.
What it helps a trader to understand
- The speed was new. Falls that took months in 2008 took days in 2020, and the recovery in the index was as fast. Neither pace could have been known in advance.
- When everyone wants cash at once, even the safest assets are hard to sell. In March 2020 things that normally move in opposite directions fell together for a time.
- A futures contract is an obligation to deliver or take delivery. The negative oil price was the cost of having to accept oil with nowhere to put it, and it applied to one expiring contract on one day.
- A circuit breaker pauses trading; it does not set a floor. Prices went on falling after each of the first three halts.
- The index recovering in six months does not mean every share, sector or account did. An average hides the things that did not come back.
These are observations about how markets and rules work, drawn from one episode. They are not advice, and they do not say that anything like it will or will not happen again.
What was knowable then?
It is easy to judge an episode once its ending is known. This exercise takes four moments from the timeline above, one at a time. At each it shows only what had been made public by then, asks a hypothetical question with three plain choices, and then shows what came next and what each choice would have meant.
The text headed “what had been made public by then” is this site’s own summary of the record, written afterwards. It is not a contemporary document and nothing in it is a quotation. The position described is imagined. No choice is marked right, there is no score, and nothing is stored.
Moment 1 of 4: 24–28 Feb 2020. The curve is drawn as far as this moment and nothing after it is shown.
Illustrative shape, not market data. The curve sketches a share index from February to August: the same hand-made line as at the top of this page, on a scale of 0 to 100 with no axis values, here drawn only as far as the moment reached.
Moment 1 of 4 · 24–28 Feb 2020
What had been made public by then
The S&P 500 closed at a record high on 19 February. In the week of 24 to 28 February outbreaks in Italy and elsewhere show the virus spreading beyond Asia, and United States shares have their worst week since 2008.
Suppose someone holds a broad fund of shares. At the end of that week, what would such a holder do?
A hypothetical for study, not advice. It does not say what anyone should have done then, or what to do now.
What is uncertain or disputed
The dates, the central bank decisions and the circuit-breaker halts are a matter of public record, as is the oil settlement price of 20 April 2020. The index figures are the published closing levels of the S&P 500 and the Dow Jones Industrial Average. How much of the recovery was owed to central bank action, to government spending or to the outlook for the virus itself is a matter of judgement, and economists weigh them differently.
Questions people ask
- How much did the stock market fall in March 2020?
- The S&P 500 fell about 34% from its record close on 19 February 2020 to its low on 23 March 2020. On 16 March the Dow Jones Industrial Average fell 12.9%, its largest one-day percentage fall since 1987.
- How many times were circuit breakers triggered in 2020?
- Four times, on 9, 12, 16 and 18 March 2020. Each was the first-level halt, triggered by a fall of 7% in the S&P 500, which pauses trading for fifteen minutes. Before 2020 a market-wide circuit breaker had been triggered only once, in October 1997.
- Why did the oil price go negative in April 2020?
- The futures contract for American crude oil for delivery in May 2020 was about to expire, demand had collapsed and storage at the delivery point was nearly full. Holders who could not take delivery had to pay others to take the contracts off their hands. It settled at −$37.63 a barrel on 20 April 2020. Other oil contracts stayed above zero.
The words on this page
Where this account comes from
Federal Reserve and Bank of England announcements, the World Health Organization’s published timeline, the Financial Stability Board’s review of the March 2020 market turmoil, and exchange records.
A number is given on this page only where it is famous and certain. Nothing here is a quotation.
Documents
- Statements of the Federal Open Market CommitteeFederal Reserve · 3 March and 15 March 2020The half-point cut at an unscheduled meeting, and the cut to a range of 0% to 0.25% with bond purchases.
- Federal Reserve announces extensive new measures to support the economyBoard of Governors of the Federal Reserve System (press release) · 23 March 2020Bond purchases with no set limit, and the new lending programmes.
- WHO Director-General’s opening remarks at the media briefing on COVID-19World Health Organization · 11 March 2020The declaration that the outbreak was a pandemic.
- Holistic Review of the March Market TurmoilFinancial Stability Board · 17 November 2020The strain in government bond markets and the withdrawals from money-market funds in March 2020.
- Interim Staff Report: Trading in NYMEX WTI Crude Oil Futures Contract Leading up to, on, and around April 20, 2020Staff of the Commodity Futures Trading Commission · 23 November 2020The trading of the expiring crude oil contract on the day it settled below zero.
These are public documents, named by title, issuer and date. No web addresses are given, because addresses change; the title and the issuer are what to search for. The account above is this site’s summary and does not quote them.
A history for study. Educational information, not investment advice or a recommendation to trade. What happened in one episode says nothing certain about what any market will do next.