Pandemics & the Markets
The coronavirus (COVID-19) has our attention. We can’t turn on our radio or TV without hearing about how the number of infections continue to rise. Our smartphones provide a steady stream of fear-inducing content on how this new virus might bring a shock to our economy and financial markets.
While the story is still developing, the coronavirus has been less deadly than the SARS outbreak in 2003, one of the best historical comparisons we have. However, the speed with which the illness has spread within China has grabbed the stock market’s attention. Analysis of prior outbreaks such as SARS, bird flu, and swine flu—and the ongoing containment efforts—suggests the global economic impact will likely be modest and short-lived, although the situation remains unpredictable at this stage.
According to Dow Jones Market Data, the S&P 500 posted a gain of 14.59% after the first occurrence of SARS back in 2002-03, based on the end of month performance for the index in April 2003. About 12 months after that point, the broad-market benchmark was up 20.76%.
The above chart reveals the effects of previous pandemics on the S&P 500.
Wuhan, China
Bottom line, history shows that predicting stock movements is a difficult (if not impossible) task. Neither past performance nor mainstream stock predictions guarantee strong performance. The best strategy continues to be sticking to plan, staying diversified, and staying invested. This is true during times of a global uncertainty, presidential elections (even this one), wars, and (potential) pandemics.
Securities and advisory services offered through Financial Forum, a registered investment advisor.