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Hindsight’s 20/20: Reflections from the COVID Market Crash

We’re now a year out from one of the biggest stock market crashes in history. As concerns around the COVID-19 pandemic ramped up throughout the first quarter of 2020, stocks began to fall aggressively. Hindsight is 20/20, but now it’s 2021. 

So, we’re looking back at the gains since the bottom of the market on March 23, 2020.

You Should’ve Bought the Dip

America’s three major indexes, S&P 500, Dow Jones Industrial Average and Nasdaq Composite, fell over 30% as investors aggressively sold off from Feb. 14 to March 23, 2020. At the time, few investors had any idea what a COVID lockdown would do to the global economy. It was untold how long the pandemic could go on. However, that did not deter investors from buying the dip as the markets fell. Those who bought the dip were rewarded handsomely as stocks rose quickly over the last few months. 

In short: if you bought the dip, you could have realized large double-digit gains in nearly every major index. From March 23, 2020, to March 19, 2021, indexes have added impressive gains:

  • NASDAQ 100: +85.52%
  • Dow Jones Industrial Average: +77.93%
  • S&P 500: +77.6%
Chart showing returns from March 23, 2020 to present on the NASDAQ 100 (QQQ), Dow Jones Industrial Average (DJA), and S&P 500 (SPY) from March 23, 2020.

Yes, those numbers are hefty. Yes, there are folks who will say: “Well that’s an unfair comparison because who would’ve bought the dip?” That’s the point. The historical growth of these indexes were still average, but some people changed their investing strategies because of fear and doubt. Even if you had bought at the S&P 500’s market top on Feb. 14, 2020, before the crash, you would have broken even 189 days later on Aug. 21. It’s fair to assume you would’ve broken even before that if you maintained regular and recurred purchases of index strategies, individual stocks and other funds.

In short, long-term index investors who bought the dip were some of the biggest winners from the COVID crash. However, they’re not alone.

Growth Stocks and IPOs Made a Killing

You might be surprised to know that there were even bigger winners than index investors who bought the dip. Or maybe you’re not, because “indexing is lame,” according to people on Twitter. 

Since the market bottom on March 23, 2020, the tech-heavy NASDAQ 100 has been the best performing “large cap” index strategy. However, it underperformed ETFs interfacing in growth stocks and IPOs.

Two of the biggest winners were the ARK Innovation ETF and IPO Renaissance ETF. Both indexes more than doubled. $ARKK received help from an aggressive allocation of Tesla stockF. $IPO was, as you would expect, boosted by robust demand for IPOs throughout 2020. It also got a boost because “recent IPOs” stayed in the portfolio for up to a year, which means that the portfolio had members such as Moderna (a vaccine producer) and Snowflake (a Buffett and Salesforce-backed cloud platform). $ARKK rose approximately 222% and $IPO rose nearly 173%.

Even then, the Russell 2000 ETF and SPDR S&P Biotech ETF both outperformed the best large-cap index strategy. The Russell 2000, which has over 2,000 small-cap stocks, bested the NASDAQ 100 by a considerable margin. $IWM rose nearly 133%.  The SPDR S&P 500 Biotech ETF, which tracks biotech and pharma companies, was not far behind it. Throughout the pandemic, healthcare companies got a boost from investors. This helped $XBI rise over 113%.

Volatility Traders Add Fuel to Their Fire

One of the most surprising things about the COVID-19 market crash is how short-lived it was. Those 38 days in February and March were infamous for their aggressive single-day drops and gains. March 16, 2020, was the third largest daily percentage loss in history for the nearly 100-year-old S&P 500. The only two days that rival it are Black Monday from the 1987 Crash and Black Friday from the 1929 Crash.

During this period of time, the Cboe Volatility index (VIX, aka “Wall Street’s fear index”) rose over 382%. Investors who picked up anything to do with the VIX before or throughout the crisis — VIX ETFs, VIX futures, VIX options — got a boost in their portfolios. 

But then markets started going back up and the VIX collapsed. Most investors would credit government stimulus, stay-at-home boredom and increased demand for “big tech” players who make up generous percentages of indexes for the reversal and gains we’ve seen on markets. However, there might be a reckoning in all that money the government printed now sloshing around out in markets. Asset prices are at the highest they’ve been and given renewed concerns about inflation, investors are wondering if we punted the problem.

A tweet from Callum Thomas, head of research at Topdown Charts, shows bearish investors shorting U.S. equities at nearly the same level as they did in March 2020. Investors are now so convinced that markets are going to drop that they are putting their money where their mouth is. An aggressive drop or move in markets will also certainly help volatility traders.

Only time will tell how long this new bull market will last. 

Noah Weidner

Noah Weidner is a restless self-starter with a vehement interest in all things that make the world go around: culture, politics, economics and all the people in between. He writes the Bullish Rippers series and covers other interesting trends and happenings at Bullish.

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