2020 COVID Crash & Recovery

The 2020 COVID crash compressed a typical bear market cycle into 33 days. From February 19, 2020 to March 23, 2020, the S&P 500 fell 34%, faster than 1929, 1987, 2008, or any previous crash. VIX hit 82, the highest level in history. Credit spreads blew out to 1,100bps. Oil futures went negative for the first time ever as the May WTI contract expired on April 20, 2020 at -$37.63. The policy response was unprecedented in scale and speed. The Fed cut rates to zero on March 15 and announced unlimited QE. The CARES Act authorized $2.2 trillion in fiscal support. The Fed extended swap lines to 14 foreign central banks, opened the Primary and Secondary Market Corporate Credit Facilities, and began purchasing investment-grade and fallen-angel corporate debt, policy actions that would have been inconceivable in 2008. The recovery was equally unprecedented. The S&P 500 regained its February highs by August 2020. The Nasdaq was up 48% year-over-year at the peak. Liquidity injected into the system drove a massive bubble in growth equities, SPACs, crypto, and meme stocks that defined the 2020-2021 environment. The lesson: central banks can create financial asset inflation on demand. The question is what happens when that liquidity is withdrawn.