COVID-19 Related Market Turmoil Recap: Part I

Equities, ETFs, Listed Options and Capital Formation

In light of COVID-19 related market dislocations, SIFMA Research tracked daily market metrics (prices, volumes, volatility) across equities, listed options and ETFs, as well as equity capital formation. This report is the culmination of that work, analyzing market trends from the start of the year through mid-June.

  • VIX: Still +176% from the start of the year, but down 58% from its peak
  • Volumes: ADVs have settled from the peaks, with equity -35%, options -35% and ETFs -58%
  • Index Prices: Rebounded from trough: S&P 500 +37%, DJIA +39%, Nasdaq +42%, Russell 2000 +43%
  • IPOs: ‘19 monthly avg $4.1B vs. March ‘20 $1.5B (-62%), April $0.5B (-88%) and May $1.8B (-57%) 

SIFMA Insights - COVID-19 Market Turmoil Report Series

Setting the Scene


The emergence of the global pandemic COVID-19 in the first quarter of 2020 caused severe economic and capital markets shocks. In an unprecedented move, federal, state and local governments purposely shut down economic activity to prevent the spread of the virus. Everything from restaurants to theme parks to manufacturing plants closed, and people holed up in their homes. The world as we knew it stopped.

By April, economic statistics painted a bleak picture. The U.S. lost over 23 million jobs, with the reported U3 unemployment rate at 14.7%, according to the Bureau of Labor Statistics (BLS). The U6 statistics provided a more accurate, yet more negative, measure of true unemployment: over 36 million unemployed, 22.8% unemployment rate.

Then came a May surprise. May total nonfarm payroll employment actually rose by 2.5 million, with the unemployment rate declining to 13.3%, reflecting a limited resumption of economic activity that had been curtailed in March and April due to the COVID-19 lockdown. Markets started to rebound, as shown by volatility coming down, volumes heading back to normal levels and index prices recovering.

But just when you thought it was safe to go back in the water, Federal Reserve (Fed) Chairman Jerome Powell tempered market enthusiasm. He indicated Fed projections were that the U.S. would end 2020 with an unemployment rate of 9.3%, with “well into the millions of people who don’t get to go back to their old job or there may not be a job in that industry for them for some time”. In light of the economic uncertainty, the Fed pledged to keep interest rates near zero through 2022 and continue its bond-buying programs for the foreseeable future. Powell noted, “The extent of the downturn and the pace of recovery remain extraordinarily uncertain and will depend in large part on our success in containing the virus.” On this report, market metrics reversed course from their recovery.

From a market structure perspective, markets remained open and functioning. The financial system and market infrastructure have been very resilient, withstanding record high turbulence, not just measured volatility but extreme 1,000 point intraday price swings. That said, there have been some concerns around the closing of physical trading floors, most notably:

  • Equities: While the NYSE floor was closed (March 23 through May 25), there were no manual designated market maker (DMM) or floor broker processes available for the closing auction. While typically all imbalance orders are filled through these processes, it is our understanding that more market and limit-onclose orders at the closing auction were left unfilled (unfilled orders get canceled back to the buyer/seller).  Floor brokers represent around 5% of intraday flow and 33% of open/close auctions. With the floor closure, floor brokers were not able to execute D Orders to match imbalances. To level set what this means, when the NYSE floor reopened on May 26, the D Orders accounted for 19.1% of closing auction volume.
  • Options: Additionally, with the closing of the Cboe and other options trading floors, there has been a substantial decline in index options volumes (April 1.6M contracts: -52% M/M from March volatility, -15% to historical levels). Cboe as a group trades 99.2% of total index volumes, and the Cboe exchange handles 99.5% of total Cboe group volume. The Cboe exchange closed its floor temporarily (March 16 through June 12), meaning almost all index options volumes were impacted by floor closings. (To be fair, there is a debate on whether it was the closing of trading floors or the extreme market volatility which negatively impacted index options.) Market participants learned from Cboe itself that the activity in complex transactions with greater than six legs is way down, as the functionality to execute these trades electronically was difficult if not nonexistent.
  • Additionally, market participants have indicated that there is a benefit to (both sell side and buy side) traders from being together on the trading floor. The floor environment fosters information flow, which was missed during the lockdown and created some temporary pockets of illiquidity in some securities.

Why have markets rallied? On the positive side, the Fed implemented an unprecedented number of programs to improve liquidity in various fixed income markets, coupled with fiscal stimulus. And the Fed continues to vow it will use all of its tools to maintain market liquidity and help the economic recovery. This bolstered investor sentiment in the equities markets.

Yet, the world has changed. Consumer demand has been lowered across multiple sectors. We have experienced supply chain interruptions, and we expect supply chain shifts (bringing supply chains to domestic soil) which could lead to inflation. Markets have handled everything thrown at them, but if we get a second wave of the virus the current level of exuberance could be dashed. We go back to square one, and we could have a second round of turmoil in the markets.

As such, market participants expect market metrics to ebb and flow with each economic report or update on developing a virus vaccine, whether positive or negative news.

Executive Summary

The market turmoil was evidenced by high volatility, sharp price declines and spikes in volumes. Throughout the turmoil, we tracked daily market metrics across equities, ETFs and options, as well as capital formation statistics.

Moving through the analysis time period of January 2 to June 15, we highlight:

  • Volatility: VIX started the year down 19.0% from 2019 levels. VIX peaked at 82.69 on March 16, +563% from the start of the year, and remains elevated at 34.40 (+176% from start of the year, -58% from peak).
  • Volumes: Markets started the year up versus 2019 levels: equities ADV +10.0% to 2019 average, with listed options ADV +13.4% and ETFs ADV +8.8%.
    • Equity ADV peaked at 19.4 billion shares on February 28, +150% from the start of the year. ADV increased again in June, now at 12.5 billion shares (+62% from Jan 2, +10.8% to May ADV)
    • ETFs peaked at 5.6 billion shares on February 28, +278% from the start of the year. ADV increased again in June, now at 2.4 billion shares (+59% from Jan 2, +22.9% to May ADV
    • Options ADV peaked at 47.3 million contracts on February 28, +119% from the start of the year. ADV increased in June to 30.7 million contracts (+42% from Jan 2, +15.2% to May ADV)
    • While still elevated, volumes have settled from peaks: equities -35%, options -35% & ETFs -58%
  • Index Prices: Markets started the year up compared to the average in 2019 by: S&P 500 +11.8%, Dow Jones Industrial Average (DJIA) +9.4%, Nasdaq Composite +14.5% and Russell 2000 +7.8%.
    • S&P 500 index troughed at 2,237.40 on March 23, -31% from the start of the year. The price continues to recover, now 3,066.59 (+5.0% to May avg, -6% from the start of the year)
    • DJIA index troughed at 18,591.93 on March 23, -36% from the start of the year. The price continues to recover, now 25,763.16 (+6.1% to May avg, -11% from the start of the year)
    • Nasdaq index troughed at 6,860.67 on March 23, -25% from the start of the year. Now at 9,726.02, the Nasdaq has fully recovered (and then some); price +7% to start of year (+6.8% to May avg)
    • Russell 2000 index troughed at 991.16 on March 18, -41% from the start of the year. The price continues to recover, now 1,419.61 (+7.9% to May avg, -15% from the start of the year)
    • To date, all four key indexes have rebounded, up from their trough price by: S&P 500 +37.1%, DJIA +38.6%, Nasdaq +41.8% and Russell 2000 +43.2%
  • Capital Formation: Total issuance of all types slowed substantially in March and remained muted in April: -77% and -37% to the 2019 monthly average ($19 billion) respectively. Issuance then exploded in May, +202% to the 2019 monthly average, driven by secondary offerings. While IPOs followed a similar March and April path, -62% and -88% to the 2019 monthly average ($4.1 billion), they were still down in May (-57% to 2019 average). Conversely, secondary offerings exploded in May, +314% to the 2019 average ($12.1 billion; -77% and -26% in March and April respectively).




SIFMA Insights
Katie Kolchin, CFA
Director of Research