Introduction:

The year 2020 will always be remembered for the onset of the COVID-19 pandemic, which infected more than 771 million people and resulted in the death of approximately 7 million people across the world. Another significant event in 2020 was the stock market crash, sending shockwaves through the financial world.

Keep reading to take a deep dive into the details of the stock market of 2020, including its causes, magnitude, effects, and more.

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What is the stock market crash of 2020?

The onset of the COVID-19 pandemic in December 2019 had a crippling effect on various sectors. As governments started announcing lockdowns to curb the spread of the deadly disease, industries began fearing unprecedented losses. As a result, the global stock markets came crashing down in March 2020, giving rise to the stock market crash of 2020.

Almost all significant indices witnessed one of the worst downfalls in history. Dow Jones fell by 7.79% on Monday, 9 March 2020. It was the Dow’s worst single-day crash in its entire history. Many investors and financial experts remember the day as the Black Monday.

If this wasn’t enough pain for investors, the value of the Dow fell again on Thursday, 12 March 2020, and this time by 9.9%, setting a new record. After that, the Dow declined even further on Monday, 16 March 2020, losing around 3,000 points and plummeting by 12.9% in a single day.

India, too, felt the ripple effects of these crashes, with the Bombay Stock Exchange’s (BSE) Sensex plummeting by 2,919 points or 8.18%. Investors started selling their stocks panic-stricken, resulting in most stocks languishing at their lower circuits immediately after the market opening on 9 March 2020. The National Stock Exchange’s (NSE) Nifty suffered an equivalent decline of 8.30% on the same date.

What caused the 2020 stock market crash?

Several social, geographical, natural, and political factors led to the stock market crash 2020, with the COVID-19 pandemic at the forefront. Let’s discuss these causes one by one:

• The economic uncertainty induced by the pandemic

The primary catalyst behind the stock market crash of 2020 was the rapid spread of the COVID-19 pandemic. It led to widespread economic disruptions as governments implemented lockdowns, cease of trade, and travel restrictions to control the spread of the deadliest virus in the history of humankind. The uncertainty regarding the length and severity of the pandemic created panic among investors, resulting in a massive sell-off.

• Oil price war between Russia and Saudi Arabia

Another development that contributed to the 2020 stock market crash was the ongoing oil price war between Russia and Saudi Arabia. In early 2020, the two countries started an oil price war, flooding the international markets with excess oil supplies. The combination of reduced demand due to the pandemic-imposed lockdowns and the oversupply of oil resulted in global oil prices falling sharply. In turn, this impacted the prices of stocks belonging to energy and other allied companies.

• Global supply chain disruptions

The lockdowns and complete halt of airlines disrupted the global supply chains. This, in turn, caused manufacturing delays or even shutdowns. The companies’ revenues and profit margins declined steeply, and the prices of their stocks started plummeting. As a result, investors started rebuilding their portfolios and divesting from stocks perceived as vulnerable to economic downturns.

The impact of the 2020 stock market crash

Below are the immediate impacts of the 2020 stock market crash:

• It resulted in severe market volatility. Daily swings of double-digit percentage points became the norm, making the conditions extremely challenging for investors.
• The confidence of investors took a hit. The uncertainty around the duration and severity of the pandemic, coupled with economic concerns, led to a massive equity sell-off. People started investing more in safe-haven instruments like gold, fixed deposits, and government bonds.
• Governments around the world started several initiatives to boost the confidence of investors. For example, central banks lowered their interest rates to stabilise financial markets.
• Several industries were hit hard, including travel, hospitality, and aviation. Companies with significant reserves were the only ones that could survive.

To conclude

The stock market crash of 2020 was one of the worst crashes in history. However, the markets have recovered well since then, and the investors are again confident. The key for them is to stay invested and create a well-diversified portfolio.

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