How Does the COVID-19 Stock Market Crash Compare to Past Epidemics?
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How Does the COVID-19 Stock Market Crash Compare to Past Epidemics?

The coronavirus is spreading quickly across the globe — but its economic impact has been even faster. Yesterday, the Dow Jones Industrial Average experienced its largest single day drop since the financial crisis in 2008. How much further will it drop — and for how long? A review of U.S. stock market activity at the time of past global epidemics could shed some valuable light.

COVID-19’s Impact on the Stock Market

The coronavirus continues to spread across the world. In China, more than 80,000 cases have been confirmed, with over 3,100 deaths. Throughout the globe, there are now over 118,000 confirmed cases, and more than 4,200 deaths.

Some of the unaffected argue those numbers are relatively small — considering the global population is greater than 7.5 billion people. Yet whichever stance is taken here, there’s one thing that’s simply unavoidable: the economic impact of COVID-19 — which has abruptly arrived.

Consider the U.S. stock market. In late February, the Dow Jones Industrial Average recorded its worst week since the 2008 financial crisis. Throughout that particular week, the Dow dropped 12% while the S&P 500 sank 11.5%.

Fears were beginning to escalate over the quickly spreading coronavirus. Yesterday, those fears peaked.

On Monday, March 9th, 2020, the Dow plunged over 2,000 points — equating to 7.79% — resulting in its worst day since October 15th, 2008. On the latter date, the Dow fell 7.87%.

The S&P 500 also tanked yesterday, dropping over 2,700 points — or 7.6%. Further, the U.S. Steel Corporation (NYSE:X) hit an all-time low yesterday. Its market cap is currently under $1 billion.

With fears of COVID-19’s potential impact spreading like wildfire, the virus’s impact has already reached the stock market. But how much will the coronavirus continue to shake up financial markets — and for how long?

Of course, we can’t be sure. However, looking at the impact of previous viral outbreaks might give us a good indication.

How Does COVID-19’s Stock Market Impact Relate to Past Outbreaks?

Generally speaking, Wall Street has typically had a brief reaction to viral outbreaks and fast spreading epidemics. This includes going as far as back 1981 for the HIV/AIDS epidemic, through the Measles outbreak in the summer of 2019.

The following table shows the six-month and 12-month activity of the S&P 500 at the time of several epidemics. Percent changes are based on end of month performance calculated from the ‘month end’ date. All data is courtesy of Dow Jones market data.

EpidemicEnd of Month PerformanceS&P 500 6-Month ChangeS&P 500 12-Month Change
HIV/AIDSJune 1981-0.3%-16.5%
Pneumonic PlagueSeptember 1994+8.2%+26.3%
SARSApril 2003+14.59%+20.76%
Avian FluJune 2006+11.66%+18.36%
Dengue FeverSeptember 2006+6.36%+14.29%
Swine FluApril 2009+18.72%+35.96%
CholeraNovember 2010+13.95%+5.63%
MERSMay 2013+10.74%+17.96%
EbolaMarch 2014+5.34%+10.44%
Measles/RubeolaDecember 2014+0.20%-0.73%
ZikaJanuary 2016+12.03%+17.45%
Measles/RubeolaJune 2019+9.82%N/A

Charles Schwab’s research has discovered similar datasets. The brokerage giant says the MSCI All Countries World Index averages a 0.4% increase in the month following major epidemics. Beyond that, a 3.1% increase is noted after a six-month period, following by an 8.5% gain after twelve months.

How the coronavirus' impact on the US stock market compares to stock market impact of prior epidemics across the globe
An historical overview of the relation between stock market activity and global epidemics.

The ultimate effect of the coronavirus will depend on a variety of factors. Some of these factors are still under human control, while others are already out of reach. Students, for example, are now turning to remote learning in an attempt to stop the spread of the virus.

Just because financial markets were able to withstand previous epidemics does not mean this will be the case with the coronavirus. Its severity is yet to be known — though it will likely be the deciding factor in whether or not history continues its pattern in terms of epidemics’ impact on financial markets.

What do you think about COVID-19’s impact on the U.S. stock market? Will the impact resemble those of previous epidemics — or it will this one be different? We want to know what you think in the comments section below.

Image courtesy of Energy News Today.

Disclosure: Tim Fries has no positions in any of the stocks mentioned, and has no plans to initiate any positions within the 72 hours following the publishing of this article. This article expresses the opinions of Tim Fries. Tokenist Media LLC has no position in any of the stocks mentioned, and does not plan to initiate any positions within 72 hours of the publishing of this article. Please consult our website policy for more information.