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Dow Futures started brightly on Wednesday morning but reversed course through the early hours. Investors are waiting for updates on the coronavirus infections around the world, especially in China, South Korea and Italy.
Last few days we were witnessing futures going pretty much down. Stocks on United States markets had really bad few days. As per our analysis most of them had lived through the worst moments in their last four years (some even five).
Most of it we can “thank” to the coronavirus that is dispersing at a fast pace. However, if we consider market performances during the onset of other infectious diseases like SARS, or Ebola and avian flu, Wall Street investors don’t have to be afraid. U.S. stock market finished 2019 with the best annual return in years so it’s hard to believe that this pathogen may sicken it a lot.
When SARS Happened, Stocks Were Still Growing
But, let’s take a few examples. SARS resulted in more than 8,100 people being sickened during the 2003 outbreak, with 774 people dying, according to the data from WHO.
Separately, the S&P 500 grew by 11.66% in the approximately six months per reports of the 2006 Avian flu virus — a fast-moving pathogen also known as H5N1. The market gained 18.36% in the following 12-month period.
On the other hand, we should be aware that the period when SARS happened concurred with the U.S. invasion of Iraq, the early stages of an economic expansion and cheaper stocks. U.S invaded Iraq on March 19 and the Baghdad fell on April 10. All major operations went off by May 1.
When SARS happened, the economy was in the early stages of an expansion phase and the S&P then traded at 15 times the price to earnings. The S&P 500 trades 22 times price to earnings right now.
Dow Futures Dropping over 200 Points in Pre-market
However, premarket trading on Wednesday saw shares on Wall Street continue to stumble as investors worry about the economic effects of the coronavirus outbreak.
Italy reported over 300 cases of the pneumonia-like virus on top of 11 deaths as Prime Minister Giuseppe Conte urged the public to refrain from panic. Meanwhile, South Korea has confirmed over 1,200 cases of the coronavirus, which originated in China in December.
The Dow was down 248 points at 4:15 am ET, while the S&P 500 lost 0.77%. At the same time, the Nasdaq 100 slumped 0.92%.
Brad McMillan, chief investment officer at Commonwealth Financial Network said:
“Investors are clearly expecting more bad news, and rather than wait for it, they are selling. There are signs in the electronics and auto industries that the slowdown is already happening, which will be a drag on growth. This risk is largely behind the recent pullback in global markets.”
Equity Markets Are Unpredictable
Be it as it may, the seriousness concerning the virus will dictate the market’s reaction for now. And yes, in the past indexes somehow succeed to brush aside the contamination from outbreaks in the past. However, that doesn’t mean that will be the case this time.
To explain a bit, let’s just say that coronavirus appeared during the important Lunar New Year when Asia usually sees the culmination of tourism and consumer spending.
This was the worst time for this to happen for Chinese economy that was already pretty sluggish. Last year it had 6.1% of a growth slowdown, mostly thanks to stalling of U.S.-China trade deal. When it was signed, it was already too late.
However, we should be aware of the fact that we cannot know how exactly the equity markets will react. They always are so unpredictable to the unknown. That is why we should not look at these happenings like they are isolated events. We have to include other predominant market conditions as well.