Will the Corona Virus make markets sick?

Corona Virus is in the news lately and stock market declines are being blamed on reports of the virus spreading beyond China.

North American Stocks Stumble

Canada reports its first case of corona virus.

For someone just starting to watch the markets, this might seem strange. Why would a flu virus impact the stock market?

For context, let’s look at what happened the last time we experienced a global flu pandemic. That would be the H1N1 outbreak in 2009. In April, 2009 the virus was first detected in the US and by June, a worldwide pandemic was declared. By the end, more than 60 million people in the US were infected with more than 12,000 deaths – as many as half a million deaths globally (Source CDC).

What happened to the markets once the infection was announced and it started to take hold? Well, in the case of 2009, the markets had just suffered a pretty significant correction related to the 2008 financial crisis. In fact, when the H1N1 outbreak was most firmly in the news, the markets generally were on their way up. Therefore H1N1 had little or no impact on the markets.

So, why have there been stock market impacts with the recent news?

There is concern that this virus might be more deadly than prior pandemics. While H1N1 did disrupt the world economy, the impacts were relatively minor and larger economic issues were responsible for the growth of the world’s economy (and the markets reacted to that). In this case, there is a real fear that this virus might spread faster (since those without symptoms seem to be able to spread the virus) and be deadlier. Therefore, there is a very small chance that the entire world will need to shut down to deal with the outbreak of the virus – global consumption and global economic growth will be affected.

The fact that this virus originated in China is not helping either. Since China has historically been stingy on the amount of information it providers to international agencies, there is a concern that things in China are much worse than reported (the reports are bad but what if China is putting a positive spin on things?).

So, the markets have reacted and we have some negative pressure on stock prices. But if history is a guide and unless this new virus is shown to be much more deadly or spread much easier than previous viruses, the markets should calm down and larger economic issues should prevail in determining the direction of stock markets.

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