It probably comes as a surprise to no one, but the first quarter of 2020 was the worst first quarter in modern market history. The stock market lost 19.6% during the quarter, but even that fact masks the truly awful stretch between February 20th and March 23rd in which the S&P gave up more than a third of its value. That kind of drop from an all-time high (February 19th) is also unprecedented. It was as if the stock market was cruising and then suddenly hit a brick wall! The decline in international stocks was worse at 22.8% and downright terrifying in the small cap arena (30.6%). We all know why stocks went down but the speed of the decline was augmented by computer trading programs. These trading systems had spent years over-investing in stocks because stock volatility continued to trend lower. As volatility suddenly soared in March, stocks became an increasingly risky asset to hold, meaning more stocks needed to be sold in order to hit target volatility. This vicious feedback loop led to - 6%, -7%, -9%, and -12% days. It was very hard to make a “good sale” on a very bad day, and this extreme market action spilled over into the Bond Market as well.

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