It is March 2020. Your investments are falling, and a $200 bill is due on March 27. You could sell to get cash for it. You could also sell because you expect prices to keep falling, planning to buy back near the bottom.
The button is the same. The reasoning is different.
The first decision depends on your deadline and the cash you have elsewhere. The second depends on getting a forecast right. By August, the S&P 500 would reach a new closing record. In March, you had a bill to pay.
A shock from outside markets
The S&P 500 reached a closing record on February 19, 2020. As the coronavirus spread, shutdowns and disrupted travel threatened business revenue. People faced illness, lost work and uncertainty about when daily life could resume.
The pandemic market shock was an exogenous shock: a disruption that began outside the financial system. The trigger was a public-health emergency, unlike the housing and credit collapse of 2008. A crash does not need a bubble to burst.
Think of a shop whose customers disappear while rent still comes due. Revenue can stop faster than expenses. For a household losing work, the same shock could hit both its paycheck and its investments. Bills kept their dates.
The dash for cash was the rush to get spendable money, including by selling investments. Investors sold even US Treasury securities. Falling prices reflected both a darker outlook for profits and the urgent need to pay bills or meet other obligations.
A third of the price gone in 33 days
The S&P 500 closing prices tell the story: 3,386.15 on February 19, then 2,237.40 on March 23. These are US stock-index prices, excluding dividends.
The change was (2,237.40 ÷ 3,386.15 − 1) × 100 = −33.9%. Just over a month had erased about a third of the index's value.
Those 33 days include weekends. They run from the closing peak to the closing trough, not from the later day when the fall became a bear market.
Sharp falls triggered market-wide trading pauses during March. Trading stopped briefly. The uncertainty about companies' survival remained.
Policy moved before certainty returned
On March 15, the Federal Reserve cut its federal funds target range to 0%–0.25%. On March 23, it pledged to buy Treasury securities and agency mortgage-backed securities in the amounts needed to keep those markets working.
The aim was to keep credit flowing to households and businesses. Congress separately used fiscal policy to provide household payments and expand unemployment benefits.
The stock market reached its low in March. The economy reached its low in April. Neither turning point came with a sign saying the worst was over.
As in 2009, markets could turn before daily life improved. Access to financing and policy support gave investors reasons to expect businesses to survive until customers returned. Share prices could rise before shop doors reopened.
The Fed's March 23 announcement coincided with the closing low. That date alone cannot tell us how much each policy or changing expectation contributed to the turn.
Two accounts after the same fall
Start with $200 at the February 19 close and let it follow the S&P 500's price changes exactly. Compare two versions: stay invested, or sell at the March 23 close and keep the proceeds in cash. We choose that sale date with hindsight.
For this example, there are no deposits, withdrawals, dividends, taxes or costs, and cash earns no interest. Both balances stay in their accounts through August 18; paying the bill is a separate decision.
At the March low, $200 × (2,237.40 ÷ 3,386.15) = $132.15. Both accounts have already lost the same amount. The lines separate only after the sale: one follows stock prices, while the other stays flat.
By August 18, the invested account reaches $200.21. Cash remains $132.15. The difference is $68.06.
Selling changes what you own. It does not subtract a second loss from the account. The $68.06 gap comes from the rebound that cash missed. Had prices kept falling instead, cash would have avoided that further decline.
Losing your job can change how much risk you can afford. Deciding when to sell includes asking what the money must do. Reducing a risk you can no longer carry requires no claim to know tomorrow's price.
The rebound was not an all-clear
On August 18, the S&P 500 closed at 3,389.78, above its February record. Yet a market record did not restore lost jobs or end the public-health crisis.
In July 2021, the National Bureau of Economic Research confirmed the US economy had peaked in February 2020 and bottomed in April, a two-month recession. The economy had stopped shrinking; it had not finished recovering.
Your $200 bill was due on March 27. Selling the entire investment at the March 23 close would produce $132.15, leaving $67.85 still to find. August's record could not pay a March bill on time.
“I need cash for March 27” gives a deadline. “I'll sell and return when prices are lower” makes a market-timing claim. The first can be checked against the bill. The second can only be judged against prices that have yet to happen.
We still need to know what other cash or dependable income you had. Without it, the chart cannot tell us whether waiting was affordable. Being able to wait is part of your financial situation, not a test of character.
GameStop in 2021 moves from choosing whether to trade to finding out whether your broker will allow it. For the shorter core route, continue to 2022, when stocks and bonds fell together.
In short
- The S&P 500 lost about 34% in 33 calendar days, from its February 19 closing peak to March 23, 2020.
- Stock prices turned before the economy did; neither recovery meant every household had recovered.
- Moving to cash avoids later stock losses and misses later stock gains.
- A bill deadline can be known when the next market bottom cannot.
- The fast 2020 rebound provides no timetable for the next crash.