A mysterious coronavirus has caused an international outbreak of respiratory illness. The outbreak emerged last month in the largest city in central China, Wuhan, a city of 11 million people and killed at least 17, while spreading to countries around the world. In this video we will analyze the impact of the Wuhan outbreak on the stock market. We will take a look back at historical data and stock market trends to find out how stock market has performed during past viral outbreaks. As for the impacts of the Wuhan outbreak on the stock market, the U.S. equity markets have experienced a rather silent trade in the past few sessions as investors keep an eye on this deadly flu outbreak in China, which could be declared a public health emergency by the World Health Organization soon.
Wall Street investors may have little to fear negative impact on the U.S. stock market which finished 2019 with the best annual return in years and has kicked off 2020 at or near all-time highs.
The impacts have not been the same outside of the US though. An article in Business Insider shows how the Wuhan virus isn't just hitting Chinese stocks but also impacting the how global oil and bond markets:
- Oil fell on Thursday after the Chinese stock market plunged on Wuhan virus fears. Oil prices fell to its lowest price in seven weeks, reflecting worry that demand will decline if the Wuhan virus undermines China's economic growth.
- According to Goldman, Oil Could Drop $3 If Virus Plays Out Like SARS.
- In the meantime, Japanese Government Bonds, often seen as a safe-haven asset, have tightened.
China has shut public transport in three cities to contain the spread of the coronavirus, according to reports. This could impact the demand for fuel and impact various industries including food, transportation, and tourism among others.
Looking back at historical data to analyze the impact of viral outbreaks on the stock market, 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%
SARS resulted in a total of about 8,100 people being sickened during the 2003 outbreak, with 774 people dying, according to data from WHO and the Centers for Disease Control and Prevention.
Separately, the S&P 500 rose 11.66% in the roughly six months following reports of the 2006 Avian flu virus — a fast-moving pathogen also known as H5N1. The market gained 18.36% in the following 12-month period.
As you could see in the video, the data is similar for equity performance across the globe based on data from Charles Schwab, tracking the MSCI All Countries World Index.
Ultimately, the severity of the virus will dictate the market’s reaction and just because indexes have managed to shrug off the contagion from outbreaks in the past doesn’t mean that will be the case this time.
✅ What do you think the impact of Wuhan virus outbreak would be on the stock market? Could this trigger the stock market recession? Will you be selling your stocks or will you stay bullish about the market?
Sources:
Bloomberg, Business Inside, Market Watch, CNN, NYTimes, Filmora, Pexels
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