page_title: 2020 stock market crash
section_title: Causes
hierarchical_section_title: 2020 stock market crash / Background / Causes
caption_attribution_description: English: Novel Coronavirus SARS-CoV-2 This scanning electron microscope image shows SARS-CoV-2 (yellow)—also known as 2019-nCoV, the virus that causes COVID-19—isolated from a patient in the U.S., emerging from the surface of cells (blue/pink) cultured in the lab. Credit: NIAID-RML
context_page_description: The 2020 stock market crash is a global stock market crash that began on 20 February 2020. On 12 February, the Dow Jones Industrial Average, the NASDAQ Composite, and S&P 500 Index all finished at record highs. From 24 to 28 February, stock markets worldwide reported their largest one-week declines since the 2008 financial crisis, thus entering a correction. Global markets into early March became extremely volatile, with large swings occurring in global markets. On 9 March, most global markets reported severe contractions, mainly in response to the COVID-19 pandemic and an oil price war between Russia and the OPEC countries led by Saudi Arabia. This became colloquially known as Black Monday. At the time, it was the worst drop since the Great Recession in 2008.
  Three days after Black Monday there was another drop, Black Thursday, where stocks across Europe and North America fell more than 9%. Wall Street experienced its largest single-day percentage drop since Black Monday in 1987, and the FTSE MIB of the Borsa Italiana fell nearly 17%, becoming the worst-hit market during Black Thursday.
context_section_description: The 2020 stock market crash occurred as a result of the COVID-19 pandemic, which is the most impactful pandemic since the flu pandemic of 1918. Rising fears and global economic shutdown due to the economic impact of the COVID-19 pandemic is believed to be a main cause of the stock market crash, though many experts have argued that it is an 'accelerant' rather than a sole core reason behind the crash.
  During 2019, the IMF reported that the world economy was going through a 'synchronized slowdown', which entered into its slowest pace since the financial crisis of 2007–08. 'Cracks' were showing in the consumer market as global markets began to suffer through a 'sharp deterioration' of manufacturing activity. Global growth was believed to have peaked in 2017, when the world's total industrial output began to start a sustained decline in early 2018. The IMF blamed 'heightened trade and geopolitical tensions' as the main reason for the slowdown, citing Brexit and the China – United States trade war as primary reasons for slowdown in 2019, while other economists blamed liquidity issues.
  Since the financial crisis of 2007–08, there has been a large increase in corporate indebtedness, rising from 84% of gross world product in 2009 to 92% in 2019, or about $72 trillion. In the world's eight largest economies–China, the United States, Japan, the United Kingdom, France, Spain, Italy, and Germany–total corporate debt was about $51 trillion in 2019, compared to $34 trillion in 2009. If the economic climate worsens, companies with high levels of debt run the risk of being unable to make their interest payments to lenders or refinance their debt, forcing them into restructuring. The Institute of International Finance forecast in 2019 that, in an economic downturn half as severe as the 2008 crisis, $19 trillion in debt would be owed by non-financial firms without the earnings to cover the interest payments on the debt they issued. The McKinsey Global Institute warned in 2018 that the greatest risks would be to emerging markets such as China, India, and Brazil, where 25-30% of bonds had been issued by high-risk companies.
  In August 2019, the U.S yield curve inverted, which sparked fears of a 2020 recession across the world. The inverted yield curve and trade war fears prompted a sell-off in global stock markets during March 2019, which prompted more fears that a recession was imminent. Rising debt levels in the European Union and the United States had always being a concern for economists. However, in 2019, that concern was heightened during the economic slowdown, and economists began warning of a 'debt bomb' occurring during the next economic crisis. Debt in 2019 was 50% higher than that during the height of the Great Financial Crisis. Economists have argued that this increased debt is what led to debt defaults in economies and businesses across the world during the recession. In October 2019, the Federal Reserve began intervening in the role of investor to provide funds in the repo markets.
  The unemployment rate in the United States was 3.6% in late 2019, which was the lowest unemployment rate since World War II. Although the unemployment rate decreased substantially between 2009 and 2019, income inequality continued to increase. In September 2019, the United States Census Bureau reported that income inequality in the United States had reached its highest level in 50 years, with the Gini index increasing from 48.2 in 2017 to 48.5 in 2018. Despite the low unemployment, the ISM Manufacturing Index dropped below 50% in August 2019, reaching a record low of 48.3% in October of that year (which was the lowest level since June 2009); it would continue to remain below 50% in the months leading up to the crash.
caption: Scanning electron microscope image of SARS-CoV-2 (centre, yellow)
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