Virus Outbreaks Harm Stocks, Just Not on Tuesday

S&P 500, aside from yesterday’s rally, has dipped up to 13% due to epidemics, Citi says.

Despite Tuesday’s market turnaround, history shows that virus scares have hurt stocks badly over the past two decades, with the S&P 500 dropping between 6.9% and 12.9%, depending on the epidemic.

That’s the conclusion of a Citigroup research note, which found the worst market pullback stemmed from the Zika virus, which raged from late 2015 through early 2016. Each time, the five virus-related panics this century had a short-term impact on equities, which bounced back afterward after the danger passed.

The current epidemic, called the coronavirus, chopped 2.6% off the index, from January 21 through Monday, with more than 4,500 people infected in China and at least 125 dead. Beijing has quarantined large sections of the country. Travel-related stocks, such as airlines and casinos (gambling mecca, Macau, offshore from China, is shuttering some of its facilities) are down.

The market turned around on the epidemic Tuesday as investors seemed to believe it could be contained, with the index jumping 1%. The big fear about such outbreaks is that they will develop into Black Plague-like scourges that will kill millions and upend the world economy. The Zika virus began in Brazil, infecting up to 1.5 million people, and threw the S&P 500 for a 12.9% loss.

Before that, the worst problem resulted from SARS, or severe acute respiratory syndrome, which originated in southern China in 2003. It sickened almost 90,000 and killed 774 in 17 nations. SARS led to a 12.8% S&P 500 slide, a hair beneath the Zika toll, by Citi’s tally, according to a CNBC report. In index sector terms, the biggest Zika losers were communications services (off 26.7%), financials (16.3%), materials (15%), and information technology (14%).

Other mass contagions were less harmful to stocks. Avian flu in 2004, MERS in 2012, and Ebola from December 2013 to February 2014 cost the index 6.9%, 7.3%, and 5.8% respectively, Citi stated.

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