Coronavirus and Financial Markets

3/3/20

Our Chief Investment Officer, Ryan Stewart, takes a look at information related to the coronavirus’s impact on markets, investments, and investment strategies, so we can reassure you, our valued customer, that we are following coronavirus closely

The latest pandemic known as the coronavirus or COVID-19 has spread from Mainland China to Asia, the Middle East, Europe, and North America. Coronavirus is a serious situation and like past pandemics, there is always a chance for a slowdown in global economic expansion. Although pandemics have historically rattled economies and markets, they tend to be short-term events. By historical terms, coronavirus (which has now been active for five months), has not reached the case levels of SARS or the Swine Flu. We continue to monitor coronavirus and how global economies respond but this is not a time to panic or sell your retirement funds, or go into hiding.

Part of our research is to understand the effects of events like pandemics on global economies but in doing so we also need to put coronavirus into context. According to the U.S. Center for Disease Control (CDC), the current flu season claimed an estimated 12,000 lives between October 1st 2019 and February 1st 2020 just in the U.S. alone (the CDC says this number could be as high as 30,000 deaths). The (CDC) also estimates that 15 million Americans have contracted the flu this season with 210,000 to 370,000 hospitalizations in the U.S. Though the migration of coronavirus has not established a foothold in the U.S., the current global death toll from coronavirus at 2,780 and the total confirmed cases at 87,191 are far less than the total U.S. cases and death toll from the flu. According to the World Health Organization (WHO), estimated global deaths from the flu are over 700,000 annually while estimated severe cases of the flu are over 5 million.

We also compared the severe acute respiratory syndrome or SARS pandemic in 2003 with the 2020 coronavirus. There were 8,437 total confirmed global cases of SARS while the global death toll was 813. During the SARS outbreak global economies slowed, especially in emerging markets, while global stock markets corrected by 20% or more. By spring 2003, the number of SARS cases began decreasing as the pandemic weakened and on March 11, 2003, as the global economic outlook normalized, the U.S. stock market began to recover with a subsequent four-year bull market. During the four-year period following SARS from 2003-2007, the S&P 500 Index rose 90%.

In the spring of 2009 another pandemic showed up on the world stage known as swine flu or H1N1pdm09 (swine influenza). According to CDC estimates, between April 12, 2009 and April 10, 2010, there were 60 million cases of swine flu in the U.S. with 207,300 hospitalizations and 12,469 deaths. The CDC estimated that globally over 287,000 people died from the swine flu virus. Unlike the 2003 SARS pandemic, the swine flu did not take the same toll on the global economy, namely the U.S. economy. However, it should also be noted that in 2009 the U.S. was exiting the Financial Crisis, with the S&P 500 Index making a generational low on March 9, 2009 of 676; given this, the swine flu pandemic had less of an impact at the time as the public was more focused on the economic recovery. Since the 2009 low and swine flu pandemic, the S&P 500 Index has a total return of 406.40%.

The average duration of SARS and swine flu was eight months, and typically pandemics weaken as spring and warmer weather arrive (noting here that the first cases of coronavirus were reported in October 2019). In addition, our research shows that both the SARS (2003) and swine flu (2009) pandemics moved on from (or at least lost their importance), as the “top story” in the media in late spring.

With this all said, eventually the virus will be contained and the global economic outlook will return to normal, but in the meantime if you have any questions or concerns please feel free to contact your Passumpsic financial consultant.

Ryan Stewart
Chief Investment Officer