Thirty Three Days: The Fastest Bear Market Ever Recorded

Where the Decade Started

Every thread this series follows, the stimulus, the meme stocks, the inflation, the rate hikes, the bank failures, traces back to five weeks in early 2020. On February 19 of that year the S&P 500 closed at an all time high, with markets treating a novel virus in Wuhan as a regional story. Thirty three days later, on March 23, the index had lost 34 percent, and along the way it recorded the fastest fall from a record high into a bear market, a decline of 20 percent, ever measured, just 16 trading days. 1929 took longer. 2008 took months. This took three weeks, because the thing being priced was not a recession forecast but the deliberate shutdown of the global economy, something with no precedent in market history.

Eight Days of Circuit Breakers

The mechanics of the crash were as historic as its speed. US markets have circuit breakers, automatic trading halts that trigger when the S&P falls 7 percent in a day, designed after 1987 and almost never used. They triggered four times in eight trading days, on March 9, 12, 16, and 18. March 16 was the worst single session, down almost 12 percent, the second worst day in the index\'s history behind only 1987. That same day the VIX, the volatility index that markets use as a fear gauge, closed at 82.69, the highest close ever recorded. Oil collapsed alongside stocks, a story wild enough to get its own entry in this series, and credit markets shut almost completely, with companies unable to borrow at any reasonable price.

The Week Even the Safe Assets Broke

The detail professionals remember most is not the stock decline. In mid March, US Treasury bonds, the asset the entire world runs to in a panic, started falling too. That is not supposed to happen, and the reason it did reveals what the crash had become. Investors everywhere, funds facing redemptions, foreign central banks defending currencies, companies drawing credit lines, needed dollars immediately, and they sold whatever could be sold, including their safest holdings. The phrase for it was the dash for cash. When Treasuries break, the plumbing of global finance is breaking, because Treasuries are the collateral underneath everything else. For a few days in March 2020, the question was not how far stocks would fall, it was whether the system itself would function.

The Response That Drew the Floor

The Federal Reserve escalated faster than it ever had. An emergency half point rate cut on March 3 did nothing. On Sunday, March 15, it cut rates to zero and announced 700 billion dollars of bond purchases, and the market fell 12 percent the next day anyway, because investors read the panic in the response. The floor finally came on March 23, when the Fed announced its purchases would be effectively unlimited and, crossing a line it had avoided for its entire history, said it would buy corporate bonds, directly backstopping the credit of American companies with the CARES Act\'s Treasury money behind it, a package covered in the next entry. March 23, the day of maximum monetary force, was the exact day of the market bottom. That is not a coincidence, and it is the single most important mechanical fact in this series.

The Rebound Nobody Traded Well

What followed confounded almost everyone. The S&P 500 regained its February high by August 18, 2020, less than five months after the bottom, the fastest full recovery from a bear market ever, while the real economy was still deep in the worst downturn since the Depression. The disconnect between a booming market and 10 percent unemployment felt obscene and became a defining political grievance. But the market was not pricing the present. It was pricing zero rates, trillions in stimulus, and corporate cash flows that the rescue had guaranteed would survive. The people who sold at the bottom waiting for the economy to look better missed one of the great rallies ever, an expensive lesson in the difference between the economy and the market that an entire generation of new investors, this author included, learned in real time.

The Bottom Line

The COVID crash compressed a full market cycle into five weeks, the fastest bear market ever, a plumbing failure that reached the Treasury market itself, and a policy response that redefined what central banks are willing to do. Its fingerprints are on every other entry in this series, the stimulus that fueled 2021\'s mania and inflation, the zero rates that mispriced everything 2022 had to reprice, and the precedent that markets now expect unlimited rescue at the bottom. Thirty three days, and the rest of the decade spent settling the bill.