By Steve Tepper, CFP®, MBA
There are two conversations my girlfriend and I have a lot. One we’ve been having for years: Why do I watch that disgusting zombie show? I don’t really have a good answer. It’s just my opinion, but it hasn’t been good for years. I guess I just want to know how it ends.
The other conversation is more recent: How bad is the coronavirus? She is sure that the Chinese government is concealing hundreds of thousands of deaths and that the death rate is way more than the reported 2 to 3% of those infected.
The two conversations merged last night for the first time, as I finally conceded that the viral outbreak is looking pretty serious worldwide but then proudly declared that my faithful viewing of The Walking Dead has left us well-prepared for the post-apocalypse.
OK, perhaps I am still not taking the threat of a global pandemic seriously, but the financial markets sure have. We just had a 2,000-point-plus plunge in the Dow Jones Industrial Average in two days, and more volatility will likely follow as more countries announce their failure to contain the disease’s spread.
As of late February, COVID-19, better known as the coronavirus, has been confirmed in 32 countries, with 79,407 cases and 2,622 deaths. For perspective, the number of cases is about the same as the seating capacity of AT&T Stadium, home field of the Dallas Cowboys.
But for a little more perspective, the population of the world would fill Cowboy Stadium 100,000 times over, meaning the infected population is about one-thousandth of 1 percent (0.001%) of the world. Even as a percentage of the Chinese cities that have been quarantined (about 50 million people as of mid-February), the disease has infected only two-tenths of 1 percent (0.2%) of the population.
And yet a little more perspective: The U.S. Centers for Disease Control and Prevention recently gave an update on the 2019–2020 flu season. Despite the flu vaccine showing a much higher effectiveness than last year (45% vs 29%), 280,000 people have been hospitalized with the flu this season, and 16,000 people have died. That’s all just from the regular old every-year flu, and just in the United States.
So why the coronavirus panic? Why is the whole world so much more spooked than other disease outbreaks that are so much more common and deadly? Well, it’s a trick question. There always seems to be a little too much panic (and stock market volatility) when a new disease pops up. Remember bird flu? SARS? The Zika virus? They all caused some level of panic and market pain, along with a bunch of other disease-related news stories over the past couple of decades. But in just about all cases, the market reaction over the slightly longer term was “meh.”
That’s a lot of pandemic panics in not very many years. Coronavirus is already in the top four for number of people infected but has proven to be much less lethal than many past diseases, including avian flu, MERS, and Ebola, which all had death rates higher than one in three. And as you can see, the market did not slow down in the wake of those outbreaks.
Of particular note is the swine flu epidemic of 2009. The numbers are staggering, far exceeding all the other listed outbreaks (plus coronavirus) combined. It also spread at a horrible time, during the peak of the Great Recession. And yet, when capital markets were ready to move in later 2009, they did, and did so robustly, without concern for the spreading, deadly pandemic.
The financial media have a long list of concerns they are shoving to the front page: China’s massive quarantines could slow down the global economy. Airlines could post staggering losses as fewer people travel. The flow of goods will be disrupted as countries prevent entry of shipments from affected areas. I can’t make an argument that none of the above will happen, only that the long-term (and history tells us, the short-term) impact on a diversified portfolio will likely be negligible.
In the end, my best advice is (1) get a flu shot, (2) avoid unnecessary travel for a while, and (3) leave your portfolio alone!
SOURCES:
How the stock market has performed during past viral outbreaks by Mark DeCambre, marketwatch.com, Feb 24, 2020.
Flu shot better than last year, despite tough season for kids by Erin Schumaker, abcnews.go.com, Feb 21, 2020.
[1] Source: Dow Jones Market Data, compiled by marketwatch.com.
[2] Wikipedia. (Zika numbers shown do not include stillbirths and infant deaths.)
[3] Avian Flu Fast Facts, June 10, 2019, CNN Library.
[4] Centers for Disease Control.
[5] World Health Organization fact sheet.
[6] Ebola: Mapping the outbreak, bbc.com, January 14, 2016.