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How Have Previous Outbreaks Impacted Markets?

The Coronavirus (COVID-19) has reached the US.  As much as we were all expecting it’s arrival, it still feels eerie.  Professional sports are suspending their seasons, Universities are canceling in person classes, and some states are issuing closure of all events with heavy attendance.  I have been trying my best to stay optimistic and level headed throughout this ordeal (and admittedly naive).  However, I too worry about what things will look like as we march through this together.  My hunch is that the worst is yet to come.  How bad?  I’m not sure, no one is.  Regardless, I am confident in the resiliency of my fellow humans and the markets.

To be clear, my worries are far more related to the health of our population rather than the stock market.  But, I’d be lying if I told you I was as cool as a cucumber right now.  Listen, financial advisors are humans, and seeing the stock market decline 9% intraday is frightening to us too.  Our advantage in this situation is that the stock market is in our wheelhouse.  What’s not in my area of expertise are pandemics.  So as you read this blog, note where my education starts and stops as I reference both outbreaks and the stock market.  

Outbreaks and Markets

Since the 1980s, we have experienced 12 major outbreaks (not including COVID-19).  The US stock market has been there for all of them, and more importantly, has recovered exceptionally well.  

As you’ve heard me state before, the best way to predict the future is by reviewing the past.  My father always told me that, but usually in regards to the disparaging boyfriends I dated growing up.  The saying still holds true to most things in life.  This past week I’ve been asking my network, “how does this compare to other outbreaks we’ve seen?”  I couldn’t get a straight answer.  So I did the digging myself.  

In my extremely basic and likely slightly skewed research, I found two major findings: 

1)  In both a 6 month and 12 month time frame following an outbreak, the S&P 500 has almost always been higher, and

2) as it stands today, mankind has experienced far worse than this.

According to data provided by Dow Jones Market Data, in the last twelve outbreaks, the S&P 500 six month percentage change from the month end of the first case reported was only negative one time.  Let me say that again, since the 1980s, six months after an outbreak the market has been positive every time except once.  The one time was back in the early 1980s during the HIV/AIDs outbreak, in which the 6 month percentage change of the S&P 500 reported a decline of -0.3% since the first case was reported.  We have a similar story with the 12 month percentage change of the S&P 500.  We only saw a negative percentage change twice.  The details of all of this are in the table provided below.

                   

*Data was compiled from the World Health Organization, Center for Disease Control and Prevention, and Food and Agriculture Organization of the united nations.Data in columns 1-4 were originally derived from Dow Jones Market Data, and republished on …
*Data was compiled from the World Health Organization, Center for Disease Control and Prevention, and Food and Agriculture Organization of the united nations. Data in columns 1-4 were originally derived from Dow Jones Market Data, and republished on Market Watch                                

         

The other part of the equation that I looked into was how does this outbreak compare to the rest?  I wanted to compare COVID-19 with other outbreaks by focusing on the amount of  people infected and the number of deaths.  I’ll be honest with you, the data I pulled is NOT consistent.  Sometimes the data was strictly within the US, sometimes I only recovered data from certain periods of time, and other variables I chose not to control (again, not my area of expertise).  Overall, what I found resorts back to my comment above, we’ve experienced far worse.  The worst outbreak we’ve seen in recent history was the HIV/AIDS epidemic with 33,000,000 cases and 14,000,000 deaths from 1981-1999.  As of 2019, 700,000 individuals in the US have died from AIDs since 1981.  

Now, by no means am I trying to downplay what is happening now.  People are becoming ill, or worse, dying from COVID-19.  I’m glad to see people stepping up to defeat this and combat the spread.  What history has shown us is that when we start to take action, medical procedures advance, and the general public becomes more informed, we see things take a turn for the better.  

As far as the market goes, we find there are two measures of a bear market.  One of which the media has continued to highlight, and the other the media continues to ignore.  The first is a decline of 20% or more.  Check!  We hit that milestone this week, and the media made sure we all knew it.  The second measure is the time frame for when that decline happens.  Bear markets take time to present themselves… we’re talking months.  This is why in the moment, they can be so difficult to predict.  However, the last market high was on February 19th, 2020 for the S&P 500.  That means, this incredible negative market movement has happened in less than 4 weeks time.  That smells a whole lot like a correction (smaller magnitude and shorter time frame) to me.   

Within the last four weeks, what has fundamentally changed?  Very little.  The two moments that stick out the most are the oil price war and sentiment.  In my experience, sentiment can move the market extremely fast in both directions.  Fear beholds this type of velocity.  As we get more answers on the virus, the economic impact, and what the road to recovery looks like, our sentiment will shift.  If you are holding stocks, the worst may still be upon us.  However, once it bottoms out (which none of us know when that actually will be), you need to be positioned exactly where you are now to recover.  

So, wherever you stand today with it all, stay strong and stay informed.  We are here to help address any questions you may have.  If new legislation is passed in an effort to address those who are economically impacted by the virus, we will do our best to provide you the information you need to know. 

Contact us with any questions or concerns.

- Natalie

Disclaimer:  This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.

Natalie Slagle
Founder, Fyooz Financial
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