Fear associated with the Novel Coronavirus, or COVID-19, has escalated in recent days, and many investors are getting anxious. This anxiety has materialized into a substantial drop in stock market indices over the past few trading sessions.
What should investors expect from markets during the global outbreak of COVID-19?
Michael Guilsher, Senior Financial Advisor at Meld Financial, recently took a deep look into this recent market action and compared it to previous global outbreaks. He’s made some interesting observations and we have detailed his analysis below.
Analysis by Michael Guilsher: Potential Impact of COVID-19 on Equity Markets Based on Date from Prior Outbreaks
The S&P 500 was down more than 7.5% over four trading days (2/20 – 2/25) and, after a strong start to 2020, is now down more than 3% for the year.
The coronavirus outbreak is only about two months old (early cases reported in December 2019 & the first death being reported in January 2020), so it is premature to discuss how this potential pandemic will play out. However, if history is any guide, it would suggest that we have some time before the coronavirus is fully contained, and we may be in for a bit more market volatility.
Since you are likely more concerned with your portfolio than contracting this virus, let’s look at how the S&P 500 was impacted by the last three major outbreaks; SARS in 2002-2003, H1N1 (or swine flu) in 2009-2010, and Ebola in 2013-2016:
- While the length of the three previous outbreaks varied, all lasted at least one year and when all was said and done the US Equity market (S&P 500) managed to come out with double digit returns.
- Volatility is to be expected, in each of the three events the S&P 500 experienced double-digit drawdowns at the trough but finished well in the black.
Please refer to the summary below, the complete data follows:
| Outbreak Event | S&P 500 max draw-down | S&P 500 return for entire period |
| SARS | -14.66% | 10/31/02 – 7/31/03 +12.23% |
| H1N1 | -12.02% | 3/31/09 – 5/31/10 +37.54% |
| Ebola | -14.35% | 11/30/13 – 6/30/16 +15.73% |
Historically, none of the previous epidemics led to a catastrophic market event and subsequently, the markets responded well following the initial volatility.
Equity Performance During Recent Health Pandemics Data – NASDAQ
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