Pandemics and the Stock Market

“Ebola Drug Race Ramps Up in Earnest”; “U.S. Ebola Response Slammed”; Upbeat Tone on Ebola Threat Questioned”. These are just a few of the headlines in recent Wall Street Journal articles covering the Ebola situation. The stock market, which was already on edge, got edgier as each article was digested. Volatility increased to levels not seen in a few years. We’ve had the Hong Kong Flu, Swine Flu, Bird Flu, Russian Flu and countless other episodes since World War II alone. I distinctly remember the SARS virus of 2003 and people were wearing masks on airplanes, including hostesses. That then, begs the question, what has the historical impact of these events on the stock market been in the past? Fortunately, there are several historical precedents and studies from major Universities, Government Agencies, etc.

This crisis is serious stuff. People are dying. But if you were looking at Ebola as a threat to the stock market, history would suggest that it is not. (That doesn’t mean that there aren’t other reasons to be concerned about the market. After all there always are.) The most often cited case of a serious pandemic is the Spanish Flu. Fans of Downton Abbey will recall that Lavinia Swire, was engaged to the heartthrob Matthew, succumbed to this disease. Perspective is in order. The Spanish Flu of 1918 was the “great granddaddy” of modern pandemics, infecting (plus or minus) a third of the world’s population. Roughly a half million people in the U.S. alone died in a one year period. What did the market do? It fell initially then went up considerably, how much depends on what beginning and ending point you pick. (Of course that also marked the end of WW I) The market also went up in the UK, despite Lavinia’s demise, by over 25% each in 1918 and 1919.

While the impact of the ending of World War I may overshadow the impact of the flu (but remember that it killed 3-5% of the world’s population), there are other cases. During the 1957 Asian flu outbreak the market (S&P 500) rose 24 in 1957 and 3% in 1958. Likewise, in 1968 and 1969 it was the Hong Kong flu. What did the market do? It went up.

There are many concerns out there that could upset this market’s now 5-year winning streak. This Ebola is serious and needs to be contained. But Ebola is not likely to be the market’s undoing, something else eventually will.