Markets and Pandemics

With the coronavirus shutting down the entire global economy, and the Dow Jones tanking by over 30%, you would not be wrong in calling the state of the world grim. However, there is at least some consolation amidst this terror - namely that nothing new EVER happens on Wall Street. While the standard of living for most has drastically increased since the early 1900s, it is important to bear in mind that fear and disease have always been a staple in the human experience. In this article, we will present some of the world's past pandemics to better understand the ramifications that investors will face in wake of the coronavirus.

On March 17, 2009 patient zero contracts the swine flu. In June of that year, the World Health Organization declares it a pandemic. Markets quickly respond with a 5% drop, but by the Fall have recovered and then some. What most be noted about the swine flu pandemic is that is was occurring after one of the bloodiest financial crashes in recent history. As a result, many companies were extremely undervalued and may not have had the same price action as when the economy is in a more developed bull market.

The Hong Kong flu of 1968 bears a number of commonalities with the 2020 pandemic. Unlike the 2009 outbreak, the economic effects of the HKF were severe - knocking the DJI down by as much as 13%. Like the Swine Flu, markets recovered after going sideways for several months. Despite a large pullback in the market, new treatment options and strategies for containment will help markets recover as they did for 1968 and 2009.

What makes the coronavirus unique with respect to past epidemics is the global response that it was met with. This can be seen with the shutting down of restaurants, manufacturing, and other businesses that make the world turn. Once this illness has died down, it will be interesting to see how macroeconomic trends change as a consequence of the global response. The disquieting amount of liquidity that has been pumped into our financial system has only reaffirmed our hyperinflation cycle. We expect to see a major pop sometime in between Q2-Q4 of 2020, and to all of our investors, we say buckle because we are heading over the rainbow to Oz!