While past rebounds can’t predict what will happen now, judging by the market’s performance during the start and end of other infectious diseases, including SARS, Ebola and avian flu, global investors may have little to fear that the current outbreak will hurt the U.S. stock market for the long-term. Read on to learn why.
Historically speaking, Wall Street’s reaction to fast-moving diseases is often short-lived. Previous health epidemics have seen the markets react negatively, then over the course of three to six months after the initial blow, returning to normal, and in most cases producing positive returns. The HIV pandemic in 1981 was the exception demonstrating over five months of market impact.
|Epidemic||Year||Duration (months)||Peak to bottom||After 1 month (%)||After 6 months (%)||2 years (%)|
|Avian Flu (H5N1)||2006||1||-11||3||19||18|
|Swine Flu (H1N1)||2009||0||-4||11||37||67|
Here are a few notable market reactions to previous epidemics:
The Asian Flu (1957)
The second most significant outbreak of the 20th century, after the Spanish influenza in 1918, was first identified in East Asia and subsequently spread to countries worldwide.
Unlike the virus in 1918, this one was quickly identified due to advances in scientific technology; therefore the death toll was estimated to be “only” 700,000- a horrific number by today’s standards.
And the market? The S&P 500 index rose by 24.0% in 1957 and by 2.9% in 1958. The UK equity market fell by 5.8% in 1957 and rose by 40.0% in 1958.
The Hong Kong Influenza (1968)
Within two weeks of the virus in July 1968, some 500,000 cases of illness had been reported in Hong Kong. The virus spread swiftly and by the end of December had spread through the United States, United Kingdom and countries in Western Europe.
The Hong Kong flu resulted in an estimated over one million deaths. The S&P 500 index rose by 12.5% in 1968 and by 7.4% in 1969. The UK equity market rose by 57.5% in 1968 and fell by -15.6% in 1969.
All 11 S&P 500 sectors declined during the SARS outbreak 17 years ago, and information technology and communication services were among the biggest losers during the period, falling 14% and 26%, respectively.
About 12 months after the bottom peak, the broad-market benchmark was up 20.76% before soaring by 66% in the following two years after the origination of the virus.
The Swine Flu (2009-10)
The 2009-10 swine flu began in March of 2009 in Mexico. At that time, the U.S. was emerging from the 2008 financial crisis and stocks were already significantly undervalued.
Four months after its inception, clinical trials for the swine flu vaccine began. In October 2009, the virus peaked in the U.S. before officially ending August 11, 2010. From the start of the virus to its finish, the Dow had risen over 40%.
For investors, it’s important to remember that the severity of the virus will ultimately dictate the market’s reaction. Just because the stock market had managed to shake off the blows from past outbreaks doesn’t mean that will be the case this time.
That said, while history may suggest the sell-off could continue, the global economy is in a better place today with a resilient consumer base and strong business spending, which could prevent a bigger market pullback and a negative long-term economic impact.
The majority of analysts, therefore, recommend that investors stay calm and not cash out of their stock market positions. They best look at the long term, whether anything will be different with the companies they’ve invested in five to 10 years.
The stock market has indeed caught a virus, but history shows us that global stock markets should more than recover from the effects of the coronavirus.