Coronavirus and stocks: Outbreak is risky for health, but probably not your portfolio
With the securities market still hovering near record highs, it doesn't take much for traders to induce nervous. This explains a number of the recent sharp selling sparked a minimum of partly by anxiety over the spreading coronavirus within China and to other countries. The roughly 1.5% tumble on Jan. 27 was the steepest down day for U.S. stocks in almost half a year. It coincided with news reports that companies from Disney and Starbucks to Ford and Apple were closing stores, suspending business travel or otherwise slowing or halting operations in affected areas of Wuhan, center of the outbreak, and other Chinese cities. Carriers like British Airways have curtailed flights. The market lost more ground Jan. 31 amid rising health warnings. The outbreak could remain within the news for months, if not longer, creating more market jitters. The China angle is important given the country's expanded trade ties and supply-chain connections with the U.S. and other Western nations. But while the headlines are worrisome, and societal health risks elevated, history suggests that the virus won't have an enduring influence on the investment backdrop.
Study of prior health scares
J. Reed Murphy, chief investment officer at Calamos Wealth Management in Naperville, Illinois, checked out the market's reaction to fifteen prior epidemics and pandemics dating to 1957, measured by performance of the quality & Poor's 500 index including dividends. The health-scare list included flus, fevers, a smallpox outbreak, plague, Ebola, cholera and other viruses.
Two of the newer and notable examples were a influenza pandemic that lasted from early 2009 to late 2010, and therefore the outbreak of SARS, or severe acute respiratory syndrome, in 2002 and 2003.
Will this point be different?
He credits Chinese authorities with responding quickly to curb travel and impose quarantines in affected areas. Also, Murphy said, medical services and personnel appear more sophisticated and ready this point compared with, say, the SARS outbreak, which also began in China. Also, the country appears to be providing more information, and therefore the heightened transparency helps to scale back uncertainty among investors and therefore the general public, Murphy said in an interview.
"Mortality rates apparently are lower but it'll take it slow to play out," he said.
And while China's economy is larger than it absolutely was during past outbreaks centered within the country, Murphy said he didn't think the U.S. is very vulnerable in terms of potential export losses, supply-chain disruptions or other business fallout.
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Grace Lau, a Phoenix advisor originally from port who has visited China repeatedly, also doesn't see investment risk as high. "I think the globe has learned the way to handle these contagious outbreaks better," she said.Lau, a managing principal at Benefit Financial Services Group, expects the stock exchange to possess a positive year in 2020, with limited impact from the virus for U.S. investors.
The bottom line is that health emergencies often are greatly overshadowed by other developments. as an example, the SARS outbreak came during the bursting of and recovery from the tech-stock bubble, while the flu pandemic coincided with the market's bottoming and early rebound from the good Recession.
Murphy's report noted the U.S. market tumbled 16.5% over the 12 months following the outbreak of a smallpox epidemic in India in 1974, marking the worst performance during any of the 15 health emergencies. But that event almost certainly had a negligible direct impact on U.S. stock prices, as global markets were much less interconnected in the past and India's economy was more closed and state-controlled.
The more likely explanation for the market drop by 1974? The U.S. was in an exceedingly recession at the time, triggered by a world oil crisis.