– How Past Viral Outbreaks Affected the Markets –
The impacts of Coronavirus have and will likely continue to be felt through the first quarter of 2020. However, we believe the best thing to do is to stay the course and not alter long-term strategic investment plans. The virus will have an impact on the economy and the stock market. There is no way around that, but the effects of the virus will be felt more in specific sectors of the market rather than the market as a whole. Moreover, past pandemics have been contained to a relatively short period of time in the investment world.
The chart below shows how a myriad of past outbreaks have affected the markets going back to 1981. The type of infection is listed along with the S&P 500’s return in the six- and twelve-month periods after the month during which the outbreak emerged. The six-month return is in blue, and the twelve-month return is in orange. For example, April 2003 was the month after the SARS virus first surfaced.
As you can see on the chart, the markets have shown incredible resilience to past outbreaks. The two where the markets were down, Measles in 2014 and HIV/AIDS in 1981, were surely exacerbated by the pandemics but were not the root cause of the decline.
Source: Argus Research, Dow Jones Market Data
In June 1981, the S&P 500 was already in decline from its November 1980 peak as the expectation of a recession was becoming reality. One year later, the US economy was in recession. The market fell far more on the emergence of recession than the pandemic. HIV/AIDS added to the negative news to drive the markets down but was not the cause of the market decline.
The December 2014 measles outbreak coincided with a collapse in oil prices that pulled the whole stock market down. The price of a barrel of oil in 2014 reached a peak of $108 before tumbling to $35 by the end of 2015. This caused the energy sector of the market to lose about half of its value in that time frame. The drag on the overall stock market as a result led to a small negative return for the markets from December 2014 to December 2015.
Outbreaks then appear more coincidental than causal. None of infirmities above managed to derail the markets. If the markets were suffering from recession or other negative effects as in 1981 and 2014, then one would expect an outbreak to exacerbate the decline. If the markets were rising prior to an outbreak, it is reasonable to expect that trend to continue as happened in 10 of the 12 aforementioned cases. The markets have been doing well and we believe will eventually overcome the fears and effects of Coronavirus.
To conclude, we would advise that patience and caution be taken with regards to the Coronavirus outbreak. We believe the markets will likely remain volatile until concern subsides. As with past market selloffs, it seems Coronavirus is adding fuel to the fire and is not the root cause of the selloff we’re experiencing now. Therefore, a sound long-term investment strategy should prove durable in these kinds of markets to help weather the storm.
Graziano Budny Wealth Management Group is a financial advisory team located at 304 Inverness Way South, Suite 305, Englewood, CO 80112. They offer securities and advisory services as Investment Adviser Representatives of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. They can be reached at 720-583-6363 or at jgraziano@grazianobudny.com, bbudny@grazianobudny.com, or mgraziano@grazianobudny.com.
© 2020 Commonwealth Financial Network®
Published on March 6, 2020