What Happened to Markets During Past Disease Outbreaks?

I thought it might be helpful in the midst of a significant downturn in the markets, as well as headlines talking about the coronavirus, to give you an additional update about how past disease outbreaks have affected capital markets. We will still provide an update at the end of this week, but this extra information will help provide some perspective.

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Economic Impact

Coronavirus will have an economic impact. On an economic basis, the downturn in GDP growth is likely to be significant in the United States as well as around the world. With that being said, we expect this reduction to be temporary. Still, one must be aware that as the economy slows, recession becomes a possibility. 

Offset against that possibility, is elected officials desire to stimulate the economy in an election year. An infrastructure package is likely happening soon and it’s entirely possible the Federal Reserve may act as well try to bolster economic growth.

Market Fluctuation

With markets in turmoil and trouble related to the virus spreading around the world, it’s logical to conclude that capital markets fell significantly based on these types of events. There have been numerous disease issues over the course of the last several decades which provide some information for us on how markets have reacted to these conditions. Understand that every situation is different. However, it is instructive to see what past situations look like when these events occurred. 

You will be surprised to learn that markets were far less impacted on the long-term than one might expect. This is not to say that markets did not react initially with volatility; they did. However, long-term returns of markets tended to be impacted by economic growth and economic conditions and that is reflected in how markets reacted.  

Take a look at the following charts.  The impact on capital markets was not quite as great as one might imagine.

Let’s look at international markets. We have proactively reduced our international equity. Still, there is no doubt that an international component exists within multinational companies. 

Similar to what occurred in the United States; markets were quite resilient. See the chart below.

Source: https://www.marketwatch.com/story/heres-how-the-stock-market-has-performed-during-past-viral-outbreaks-as-chinas-coronavirus-spreads-2020-01-22 

I thought it might be helpful to provide you this special extra update to give you some perspective on the markets. It doesn’t make the fluctuation any less uncomfortable but perhaps does give some perspective to recognize that all is not as economically grim as recent news headlines might suggest.

At DWM we have prepared for significant volatility in an election year, and we are pleased that we took these actions on a proactive basis. Additionally, we continue to adjust during this downturn as needed and will continue to do so.

If you have any questions about this information, please let us know. Always here to help.