With U.S. equity markets down over 1% today, the media outlets have all stated that it is a reaction to the uncertainty of the latest news from China concerning the new coronavirus (termed “2019-nCoV”) that was first detected in Wuhan City.
In the last 20 years, there have been many major outbreaks of infectious diseases worldwide. Some of the more well publicized include the SARS outbreak of 2003, Avian Flu (H5N1) 2006, Swine Flu (H1N1) of 2009, Ebola in 2014-2016, and a Measles outbreak in 2014 and again 2019. All of these diseases can be killers of people who contract the disease and they are very real and dangerous. However, it is much more likely to contract the flu this year than it is the latest coronavirus.
The effect of diseases on the stock market around the world is very short lived. In 2003, the impact on the US equity market was almost negligible with the S&P 500 up over 25%. Although the overall Chinese stock market decreased with the SARS outbreak, 6 months later it had regained all its losses. History has shown that the stock markets have short memories of outbreaks of infectious diseases.
At Prato Capital Management, we feel the ‘breaking news’ of the corona virus outbreak in China is another example of the ‘noise’ in the media outlets. It may make a good headline today but will be forgotten when the next big thing comes along. We strongly recommend that you ‘Tune Out the Noise’ and focus on the long-term benefit of a balanced and diversified portfolio.
What is a Coronavirus?
According to the CDC, a coronavirus is a virus that causes respiratory illnesses and can cause symptoms like a runny nose and congestion to pneumonia or bronchitis. More severe coronaviruses have included MERS and SARS.
The CDC website has more information on the health risks associated with this new coronavirus : https://www.cdc.gov/coronavirus/2019-ncov/index.html