Stocks were deeply in the red again on Monday as fears over the recent Coronavirus outbreak continued to spread. Will the market continue to plummet? What should investors expect going forward?
I’ve compiled a series of historical charts to help make sense of what might happen next. But first, a primer on Coronaviruses, generally:
Now, on to the historical market context. Generally speaking, history tells us that market corrections resulting from the outbreak of a disease tend to be short-lived. For example, looking back at the other Coronavirus outbreaks, SARS and MERS (specific types of viruses with the Coronavirus family), each saw markets in positive territory following news of the outbreak within 3 months or less. Note that, to date, research on the recent Coronavirus strain indicates that it is less deadly, in terms fatalities per infections, than both SARS and MERS.
Here are the performance charts you’re looking for (the first shows the MSCI World Index, and the second shows the S&P 500 Index):
This is not to say that all is rosy. Some industries are disproportionately impacted, like those related to travel – think cruises, airlines, hotels, etc. This was evidenced in clear underperformance in this group as shown here, during the Bird Flu outbreak in 2006:
Note that these names tend to eventually close the gap of initial underperformance that occurs coincident with the outbreak (as they mostly had by the end of 2006 in the chart above).
With the current outbreak, travel-related names have similarly underperformed to date:
Historically speaking, travel-related names might be great to scoop up on this underperformance, once it seems like new cases of the virus fall off the news cycle. Indeed, it might not be a bad time to add general equity exposure on this Coronavirus weakness. History would tend to agree.