Welcome to the new decade! There is a lot to be excited about with the New Year but at the very same time, there will be no shortage of drama that awaits your investment markets! The impeachment trial started to get warm but quickly fizzled out and so did the political headlines. In a few months, election risk is very will rise as we inch closer to November and volatility may be in store. But let's put that off for now and just focus on our current plate of issues: the Coronavirus. This new virus is certainly causing sickness, as evidence of January's volatility. While we all wait for more concrete answers, the question I was asked recently in a client meeting was ‘what kind of lasting affect’ will this new flu have on the stock market?
I spent some time and reviewed past epidemic/pandemics over the last 30 years and they are listed below. My overall takeaway was that while all new diseases created short term volatility and disruption, the markets almost always returned to normalcy within 6 months. See below. (1)
6-month % change of S&P
12-month % change of S&P
—Source: Dow Jones Market Data
AIDs/HIV was an exception to the rule. This epidemic had more than a 12 month hangover on the stock market, which could be correlated to the incurable nature of the disease. However, almost every other one was short-lived as seen on the graph above.
To conclude, I don't have a clue as to what extent this virus or "pandemic" will spread, where it will spread to and don't know the economic aftermath it will have; only time will tell.
Keep an eye out for announcements of a vaccination for Coronavirus! The most brilliant minds in the world are working on it.
Make it a great week!