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. U.S. markets wrapped up one of their messiest-ever weeks Friday, recording their worst finish since the 2008 financial crisis.
The drop was caused by unbridled global fears about the spread of the coronavirus, oil price drops, and looming recession. Only two other dates in U.S. history had more unsettling one-day percentage falls. They were Black Monday on Oct. 19, 1987, with a 22.6% drop, and Dec. 12, 1914, with a 23.52% fall.
The Standard & Poor’s 500 tumbled 15 percent from where it began Monday, with stocks wrenched all week in hourly spasms as investors tried to fathom where the coronavirus will eventually leave the U.S. economy.
The craziness ran right up to the closing bell, with the S&P and the Dow Jones industrial average plunging more than 3 percent minutes after the World Health Organization warned that global health systems were “collapsing” under the strain of the pandemic.
Wall Street’s meltdown over the past month has erased all of the stock market gains since President Trump entered the White House. On Feb. 12, the Dow peaked at 29,551.42 — a 49 percent jump from its close on Trump’s Inauguration Day in January 2017. But within a span of weeks it has lost a third of its value as the coronavirus crisis has played out. On Friday, it lost an additional 913.21 points, roughly 4.6 percent, to close at 19,173.98.
Investors had been jittery ever since President Donald Trump launched trade wars with China and other countries. By Feb. 27, the Dow had skidded more than 10% from its Feb. 12 record high. It first entered a correction when it closed at 25,766.64.
Markets lurched all week, but nothing signified the chaos like oil prices, which dropped below $20 a barrel for part of the day Friday — a mark not seen in years. Oil prices are so low that the industry may go through a generational restructuring. Prices need to be at least in the $50-a-barrel range for companies and producing states to make a profit.
The 2020 crash eventually occurred because investors were worried about the impact of the COVID-19 coronavirus pandemic. COVID-19’s mortality rate so far is more deadly than the seasonal flu’s rate. Although less deadly than SARS’s death rate in 2003, COVID-19 is spreading more quickly. 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.
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. When the yield curve inverts, it means investors require more return in the short term than the long term. Inverted yield curves often predict a recession.
The curve inverted before the recessions of 2008, 2001, 1991, and 1981. Investors were telling the world with this market signal that they were so worried about the impact of the coronavirus over the next month that they needed a higher return on the one-month bill than for the 10-year note.