Outbreak: Coronavirus
Risk to Markets
– Wuhan City, Hubei province of China, novel Coronavirus, COVID-19, (2019-nCoV) sparks some fear.
I first wrote this article on 02/13/2020 and the market was in a confirmed uptrend with minimal distribution in the general indexes, 3 distribution days on the S&P 500, and 2 distribution days on the Nasdaq composite. For the week the S&P 500 fell 1.03%, and the NASDAQ fell 0.79%. Markets are still comfortably trending above their respective 20 day moving averages. The put to call ratio spiked to 1.10 from a very low 0.65 some fear is welcome as it keeps the market from getting parabolic. The spread of the COVID-19 which may prove to be a very serious event, gave the market an alibi to start selling off, as mentioned last week it would not be unusual to get a 2-8% correction. Corrections are usually technical or caused by real world events. Nothing has changed in terms of market breadth and price action in leading stocks.
According to the World Health Organization (WHO) at this time the outbreak of 2019-nCoV, Coronavirus, Covid-19 or now Wuhan Virus is not a Public Health Emergency of International Concern (PHEIC), initially 557, now 80,000 cases globally confirmed (initially 17 deaths, now 41 ) (so far 5 cases in the U.S.) Naturally, it is early and this will change. As of 6/06/2020, now there are 6,772,361 cases worldwide and 395,703 deaths. History shows that in the near term the market can react negatively but quickly recovers, so below we can review some history, just to see what we might expect.
Swine flu 2009 (H1N1 virus) Markets just started recovering in March of 2009 from the financial crisis when the swine flu broke out, first case reported in April 2009. Headlines warned of sending us back down into a recession at this time the market dropped 4.9% from May 8 to May 15, recovered and rallied then as the fear intensified, due to the World Health Organization (WHO) declaring a pandemic and the Center for Disease Control (CDC) estimating 1 million affected cases in the US, a 7% pullback from mid-June 12 to July 10 as the casualties piled up, estimated death toll was from 100,000-200,000, a terrible thing but not as bad as the millions predicted. August 10th WHO declared an end to the pandemic. The market rose 23.5% in 2009 and from the March 6, 2009 lows the market rallied 66.7% that year.
SARS 2003 (a coronavirus) was first reported in Asia in February 2003, over the next few months the illness spread to more than a dozen countries. A total of 8,098 people worldwide became sick of these 774 died. The market was just recovering in late 2002. But despite this and the second Iraq war the market rose 28.7% in 2003 (rose 41% from the March lows.)
Bird Flu1968 (H3N2 virus) First noted in the United States in September 1968, estimated deaths was 1 million worldwide and about 100,000 in the United States, people over 65 were mostly affected. This virus continues to circulate worldwide as seasonal influenza. That fall the market rallied 16% into the end of the year.
Bird Flu 1957 (H2N2 virus) broke out in Singapore February 1957, Hong Kong in April 1957, and coastal US in summer of 1957. In 1957-1958 CDC estimates that the flu pandemic killed 1.1 million people globally 116,000 in the United States. The markets actually rallied from February lows of 1957 15% higher into July 1957 then dropped 20.4% bottoming in October 1957 then rallied 64% until September 1959.
1918 Pandemic (H1N1 virus) first identified in military personnel it was estimated that about 500 million people or about 1/3 of the world’s population became infected with the virus It was estimated that at least 50 million people worldwide with about 675,000 in the United states. This was the deadliest pandemic of the 20th century. April 1917 WWI started; April 1918 first reports surfaced of influenza lasted through about April 1919. The market bottomed in December 2017 and just about doubled by December of 2019 (rather remarkable since this virus is responsible for killing off 6% of the global population.)
World Epidemics and Global Stock Market Performance
Don’t panic and let your emotions make the financial decisions for your investments. Today’s headlines are scary and are likely to get even worse if we follow along the path of prior episodes. As far as the market goes, we will watch for an internal oversold condition and washed out sentiment statistics that would suggest the market has appropriately priced in the fears. We are getting there, but may need a little more time.
Please contact us if you would like to discuss this further at info@commonfinancialsense.com
P.S. For those who haven’t yet discovered it, this “dashboard” from Johns Hopkins University’s Center for Systems Science and Engineering (CSSE) provides real-time updates of the number of cases, deaths and recoveries; as well as the geographic distribution thereof. [Caveat: As of today 02/13/2020, we are finding that the site has been sporadically down.]
