A year ago this week the stock market was hitting new highs and it was all aboard. Buyers had all but ignored the so-called Wuhan virus and were buying pretty much everything in sight given the strong earnings just reported from an excellent reporting season.
Underneath, though, there was a story simmering that would cause one of the most swift bear markets in history, one that would cause the Dow Jones Industrial Average to plunge 31% peak to trough, then cause a lasting bottom that we live with these days.
This is the story of that bottom. I could tell the story equally about the highs and descent, but the descent was a public healthcare crisis unlikely to be repeated while the bottom was an unorthodox, non-textbook bottom that became a template for the future and must not be forgotten.
By way of a brief background, when we look back at what caused that initial decline from Dow 29,146 on Feb. 24, 2020, it's surprising to see that the first big, bad headline came from the much-maligned -- justifiably -- World Health Organization (WHO), which put out a story saying "Coronovirus Spread May Not Be Contained."
Italy had just had its seventh death, no doubt related to the first serious import from China, after a massive influx of Chinese buyers for Milan's Fashion Week. I had been there the previous year. The annual event has been a mainstay of American buyers seeking the most fashion-forward clothing lines, though the Americans have been replaced, and replaced dramatically, by the Chinese, many of whom flocked to Milan the week of Feb. 18. We know now -- we didn't then -- that's the precise incubation period needed to get people sick with Covid-19. We were curious why we had not been hit harder.
On that fated Feb. 24, the Dow sank 1,000 points and the S&P 500 and Nasdaq gave up 3.6%, with travel and leisure, mostly airlines and hotels, getting hit, though a generous selling wave stemming almost entirely from the futures was spreading tentacles everywhere.
Feb. 25 was not much better. Even as China seemed to be going in the right direction --something that never stopped from that week on -- the two-day decline totaled 1,900 Dow points, or 6.6%, and the 10-year Treasury yield hit an all-time low of 1.328%. And so the descent began.
Literally, each day something new and negative happened. Hotelier Marriott (MAR) told us on the 26th that its earnings would be cut by world travel. The stock had fallen already from $148 to $124. The next day we read of four deaths. We learned just then of cases in Illinois. Even as the Centers for Disease Control and Prevention (CDC) assured us it was working on multiple fronts to contain the pandemic, it was now out of control.
Our story begins Sunday, March 15, after the Dow Industrials fell a dizzying 1,800 points in three days' time, to close Friday the 13th at 23,815, a drop caused in part from a recognition that the government had fallen far behind in trying to stem the decline that had lasted a mere three weeks. That Friday, Treasury Secretary Steven Mnuchin, trying to straddle between President Trump's payroll tax cut method of stimulating the economy -- in retrospect, just one of so many clueless ideas from the business-person president -- and a much bigger stimulus package, told me that a bill in the House was like a second inning in a nine-inning ballgame and a payroll tax would not be enough.
There was talk of cash payments. But there was also an undercurrent by the Democrats against corporate welfare. It is stunning to see how little both sides knew about what was going to happen in the ensuing days.
Not everyone seemed to be as out to lunch as our elected leaders. In one of the most shocking moments of the entire debacle, Federal Reserve Chair Jay Powell took to the airwaves on a Sunday night and called for a full one percentage point rate cut, a huge buy of bonds, a slash in the discount window so there would be no stigma to getting funds for any bank and a coordinated central bank action to fight the decline in economic activity.
We didn't know it yet, but that Sunday night rate cut was actually the beginning of the end for the market's decline, even as the Dow fell nearly 3,000 points that Monday, March 16, and the S&P surrendered 12%.
Wow, it was ugly. Instant trading halt, but not instant enough as it was supposed to kick in down 7% but didn't get thrown until down 8%. Too swift. The VIX spiked to 82. Oil plummeted to $28 a barrel. It had been in the fifties the month before.
The market hated what Powell had to say, in part because it seemed so out of touch with how Congress and the president saw the crisis. The S&P finished down 30% from its high. Only nine S&P names were in the green.
Oddly, there were only two pieces of good news that day. Analysts in touch with Tesla (TSLA) learned that it could make the numbers if not beat them and had plenty of cash flow on hand. And Moderna (MRNA) , an upstart vaccine company, had just blocked the virus from infecting one participant. The stock soared 24%.
As it turns out, a wild week that oscillated between calm and storm was only just beginning.