History Of Pandemics Says Don’t Sell

The novel coronavirus (nCoV) that emerged from Wuhan, China has caused markets—especially international and emerging markets—to sell-off. Given that nCoV is spreading much faster than SARS, and appears to be more contagious (but apparently has a much lower mortality rate), there may be no precise analogue in market history. Having said that, the history of market reactions in the wake of pandemics show that they react reflexively downward and then recover quickly—within three to six months. This was true not just with SARS but also with avian flu in 2006 and MERS in 2013.

In the end, SARS caused nearly 8,000 illnesses, of which approximately 10% were fatal. For context, the flu has sickened 15 million Americans this season alone and tends to kill 300,000 to 650,000 people annually worldwide. On the flipside, the flu only kills 1 in 1000, while nCoV appears to kill 2–3 per hundred. As a result, the fear surrounding nCoV is more likely than the virus itself to have an effect on global growth. Travel plans and conferences are being canceled worldwide; economic activity is being suppressed. That said, global virus outbreaks rarely lead to severe recessions. If we do have a recession in the next year (a distinct possibility), it will likely have less to do with nCoV than with cyclicality in general.

As these MarketWatch charts demonstrate, history has not been kind to those who’ve made the decision to ditch stocks on the emergence of pandemics. Of course, there’s no guarantee that this virus won’t follow a worse trajectory than all the other outbreaks illustrated, but probabilities (not remote possibilities) and the context of history must be our guide.

This article was written by James Berman from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.