The coronavirus outbreak is taking its toll on healthcare systems worldwide. The virus outbreak originated in Wuhan, China. It is thought to have spread from open markets selling wild animals for consumption. Not only is this virus taking its toll on human life but also the world’s stock markets.
Stock markets dislike uncertainties and thrive in stable predictable situations. For example, the flu has killed ~14K people and hasn’t caused a mass selloff in the stock market. Due to the flu’s seasonal nature it has a predictable pattern and is not as concerning. The coronavirus is deadlier, and we don’t know if it is going follow the same seasonal patterns as the flu. This unknown pattern is scary.
The SARS outbreak that occurred in China between 2002 and 2003 is the most similar to the current coronavirus outbreak. However, the outbreak occurred while the US was recovering from 9/11 and invaded Iraq. It’s sad to say that the world is covering the coronavirus outbreak to a greater extent as there’s not a better story to cover. This 24-hour news coverage is causing greater fear (for good or for bad). SARS actually had a higher mortality rate than the coronavirus. News media was focused on covering the war, so people were not as concerned about SARS.
The chart above (from Capitol Group) demonstrates that the world’s stock market has overcome these types of outbreaks many times in the past. I suspect markets will do the same this time around. It is best for investors to not make drastic changes to their portfolios. If the selloff is causing too much distress, we need to revisit your risk tolerance and potentially make permanent changes to your portfolio as the market recovers.
Please reach out to me if you have any questions or concerns regarding your portfolio.