Fear related to an unprecedented event has a domino effect in the stock markets that can send stock prices crashing, as investors look to pull their investments out before prices fall further. Since each investor is looking to sell, there is more supply of stocks than demand which leads to overall stock prices to collapse.
Black Monday: 2020 Stock Market Crash
The Coronavirus pandemic has had a snowballing effect on all sectors. We’ve witnessed negative oil futures prices because of storage issues. Earlier in March 2020, fears of recession sent stock indices lower.
While global markets got highly volatile beginning March, it is the stock market crash in 2020 on March 9 that will be remembered as the Black Monday. When global stock indices, including bellwether ones like the Dow Jones, crashed to their lowest in a single day. This movement has been recorded as the most severe since the global recession in 2008. These indices continued to record further historical losses on March 12 and March 16.
India felt these ripple effects too, and in March the BSE Sensex plunged to close over 2,919 points, (or 8.18 percent), triggering a circuit breaker immediately after market opening. Intraday records show that the index crashed as much as 3204 points, its biggest one-day drop. The NSE Nifty suffered an equal decline of 8.30 percent in a day.
How Severe Was Black Monday 2020?
The fact that there have been only two more occasions in history of stock trading that markets have seen such record declines in a day, shows the severity of 2020 stock market crash. Black Monday of October 19, 1987, saw prices sink 22.6 percent in a day and previously on December 12, 1914, prices fell 23.52 percent triggering the period of the great depression.
Chronology Of Stock Market Crash 2020
Here’s a chronology of how the pandemic and recessionary fears took the stock market down:
– February 24-28: Global stock markets post record weekly declines since 2008
– Monday 9: Dow Jones Industrial Average, leading US stock index fell 2014 points. Dow’s worst single-day drop in points in history. The S&P 500 also fell by 7.60 percent. Brent crude prices crashed 22 percent as expectations for the demand for oil remained muted. A drop of 7 percent in the stock prices in 5 minutes set off the circuit breaker, and trading was stopped for 15 minutes.
– Monday 12: Also called the Black Thursday, the Dow fell a record 10 percent by 2,352.60 points, a single-day stock market correction. Not just the Dow but stocks across Europe and North America saw prices crashing by over 9 percent. S&P 500 and Nasdaq dropped by around 9.5 percent on the day.
– In India, BSE Sensex following global sell of stocks, fell by 2,919 points, posting an 8.18 percent, largest intra-day loss. The NSE NIFTY also recorded a similar decline of 8.30 percent. The FTSE lost 17 percent that day.
– March 16: The Dow dropped 2997 points, a 12.9 percent decline, a similar decline was only seen back in October 1929 Black Monday.
– On March 11, the Dow closed down 20.3 percent from the February 12’s historic high of 29,553 points, highest in a hundred years. The 20 percent decline indicated the beginning of a bear market after an 11-year bull run.
– One stock index benchmark each in the G7 countries has been declared to have entered a bear market, a phase in stock trading dominated by a pessimism in sentiment when prices are expected to decline and so demand for stock stays largely muted.
– By March 24, the stock market crash had wiped clean equity wealth worth 40 percent of India’s Gross Domestic Product.
Causes of Stock Crash 2020
Uncertainty about how the coronavirus pandemic would set off a possible recession, layoffs, global economic slump, coupled with compression in oil prices due to the on-going oil price war between Russia and Saudi Arab, triggered the market reaction that we witnessed post March 12.
The World Health Organisation declared coronavirus outbreak as a pandemic that set off a series of global lockdowns and travel bans as Covid-19 infections and infection-related casualties leaped across the world going into lakhs. Investors worried about the repercussions of the pandemic on markets and economy, started pulling their money out en masse, which led to stocks crashing in global markets. The pandemic not only brought global trade to a standstill, but domestic production has also come to a screeching halt in many countries grappling with the scope of the virus.
Trade wars between China and the US:
It is not that the stock market crash was an exclusive result of the pandemic. The markets had been volatile since trade wars between two global superpowers, China and US ensued and trade relations between them worsened. The Dow had seen a decline of 10 percent by the end of February from its historic high.
If you have retirement savings or other funds invested in the stock market, the crash lowered the value of your holdings. When something like this happens, many people panic and sell their stocks to avoid losing more. But the risk with that strategy is that it’s difficult to know when to re-enter the market and buy again. As a result, you could lose more in the long run, if you miss important market gains in the shorter term. On average, bear markets last 22 months. But some have been as short as three months. Most financial planners recommend you sit tight and wait it out.
Crash in Oil Prices:
Oil prices were already under pressure as commodity prices across the board were on a decline owing to pandemic fears as factories stopped milling and production slowed. But on March 8, 2020, Saudi Arabia kicked off a price war by working to bring down oil prices by 64 percent quarterly, after talks with Russia failed on cutting down oil production during the pandemic.
But trading analysts say, every stock market crash has its trading opportunities. This may be a good time to buy during a dip if you have the right technical expertise and trend analysis to guide you on the right stocks to pick. Others recommend adopting the wait and watch policy in stock investing at such times since it is hard to predict the time of recovery and the extent of damage the pandemic may have caused to the global economy.