Coronavirus Impact On The Markets
News out of China of a new contagion – the coronavirus – has spooked stock markets across the globe. Investors are clearly concerned that the global economy could experience an unexpected slowdown due to the virus’s spread.
First, we need to realize that the human cost of the virus far surpasses any concerns we might have about “the market.”
As of the time of this writing over 100 people in China have succumbed to the infection. So our first concern is for those directly affected by this.
As it relates to global markets, this is the fifth such contagion “scare” we’ve had in the last 20 years.
This table from JPMorgan looks at these past scares and their ultimate impact on the markets that experienced the most impact.
In each case, there was an initial, forceful move to the downside in the stock markets where the contagion was most prevalent.
However, markets quickly recovered and posted strong returns from the peak of the scare.
It’s worth noting that there were other factors affecting stock markets during these scares. The Second Iraq War was just getting underway during the SARS outbreak, while the Swine Flu epidemic coincided with extreme uncertainty in the global markets as a result of the Great Recession of 2008-2009.
That clouds the view of the initial market drop and subsequent recoveries.
Much like the back-and-forth between the U.S. and Iran in early January, there tends to be an initial drop in stock markets as investors reduce risk. Subsequent news flow dictates whether these investors continue to reduce risk (i.e. sell) or get back in.
How the coronavirus story plays out is anyone’s guess.
If it continues to get worse, the impact to the global economy will become meaningful as travel and trade slow down.
This would be negative for global stock markets. However, the experience of previous episodes suggests that investors will quickly move back into the market if they believe the situation is contained.
Wondering how this affects your future finances?
VIEW MORE FROM FINANCIAL ADVISORS IN DEER PARK