Lesson 2
March 2020: COVID Crash
March 2020 showed that the Fed will do literally anything to prevent deflation/collapse. This makes the 'Fed put' more credible. But it also means inflation is the accepted cost.
📊 Indicators mentioned in this lesson (click for details):
The COVID crash was the fastest bear market ever and the fastest recovery. It demonstrated modern Fed power.
The Crash (February-March 2020):
- S&P 500 (SPY): -34% in 23 trading days
- VIX: Spiked to 82 (highest ever)
- Credit spreads: HY to 1100 bps (faster than 2008)
- Treasury market: Broke (even safe assets sold)
What Broke:
- 'Dash for cash': Everyone needed dollars
- Treasury market: Couldn't handle the selling
- Corporate credit: Froze completely
- Dollar shortage: Global scramble for USD
The Response (March 23, 2020):
- Fed: Unlimited QE ('whatever it takes')
- Fed: Corporate bond buying (unprecedented)
- Fed: Municipal bond buying (new)
- Fed: FX swap lines (unlimited)
- Treasury: Direct fiscal payments
The Recovery:
- Stocks bottomed March 23 (day of Fed announcement)
- 68% rally in 10 months
- NASDAQ +100% by February 2021
The Lessons:
- Fed response is faster now: They learned from 2008
- Unlimited QE works: Market bottomed on announcement, not execution
- Credit is the key: Fed fixed credit first; stocks followed
- Never bet against coordinated response: Fiscal + monetary is overwhelming
Check your understanding
Lesson Quiz
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Quiz Check
It's March 10, 2020. Stocks are down 30%, VIX 82, corporate credit froze, Treasuries selling off (not rallying). What's this signaling?
Quiz Check
The Fed announces unlimited QE on March 23, 2020. You're down 30% YTD. Do you buy immediately or wait?