When we look back at the year that was 2020, I think we can all agree that it was unprecedented. While pandemics have occurred in the past, the response from all levels of government was what our society was most unaccustomed to; never-before had US citizens been ordered to close their businesses and stay at home. For investors, the volatility in the market was also unprecedented.
Before the pandemic became a part of our lives, we had already had some eye-popping headlines for investors to digest. In January, the US assassinated a top Iranian military official and an impeachment trial began in the Senate. But by the end of the month the headlines had turned to the novel Coronavirus. The Centers for Disease and Control confirmed the first known case of Covid-19 in the US and President Trump imposed the first of many travel restrictions. The market was down 1% to finish the month.
Stocks started out well in the first half of February with the S&P 500 up 4%. The threats posed by the virus were still not yet fully understood by the public. In fact, it would not be until March 11 that the World Health Organization would declare a pandemic and markets would be in free fall. It was during the first week of March that individual states began declaring emergencies and panic started to set in.
The Federal Reserve took the unusual step of slashing interest rates before its quarterly assessment is typically due. Billed as an “Emergency Cut” by the media, markets did not react well. The last six times the fed cut rates in this fashion were all done during times of crises. By the time the Fed made its announcement on March 3rd, the S&P 500 was down 10% from its high on February 19th. Two weeks later it was down 25%, and on March 23rd the bottom would be reached at -34%.
Prior to 2020 the S&P 500 had fallen more than 9% in one trading day 6 times in last 150 some odd years. It happened twice in March. On Monday, March 16th the index closed down 11.98%, the third worst day in history. Only in 1987 and 1929 had the market fell so far and so fast. But in ’87 it took close to two years to recover the gains, and in ‘29 the market would fall a lot further and spend the next 25 years below its previous high. This time the market was back to where it started five months later, this is a remarkable fact.
If you are a student of the markets and are interested in learning from the past, 2020 was an incredible year. What surprised me was how quickly the market came back. What did not surprise me is how quickly it fell.