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The first quarter of 2020 has been upended by the black swan event that few saw coming: coronavirus. While recognition by the US stock markets was initially muted, sentiment has since caught up and threatens a bear market should conditions progress. As during previous epidemics, other factors may impact markets concurrently, but we narrow in on market response to viral outbreaks.

Global Markets Update

The previous three weeks through 3/6/20 have seen global markets react turbulently to fears over the coronavirus. The US stock market, as represented by the S&P 500, declined by nearly 12% throughout the period and on Monday, 3/9, experienced its worst one-day drawdown since the Global Financial Crisis (2008-2009). Other markets have responded in sync, with smaller US stocks¹ down over 14% and international stocks² down nearly 10% over the same three-week period³.

The Coronavirus & COVID-19

Governments and health agencies across the globe are working to better understand the statistics and implications associated with the coronavirus and the disease it causes, COVID-19. Thus far, over 100 countries have reported cases of the virus, and there have been globally over 114,000 cases and over 4,000 related deaths⁴.

Two questions that inevitably enter the minds of all investors are: How bad could this get, and how bad has it been before? The answer to the former is that we simply don’t know. It is likely that the virus will continue to spread, but current efforts at containment and clinical solutions may act as successful deterrents as we learn more about this particular strain.

So, how did markets react to recent outbreaks?

  • During the SARS outbreak of 2003, about 8,000 became infected globally and less than 800

    perished. The S&P 500 was positive one month after the outbreak, and six months later rose by

    over 20%⁵.

  • Since the initial outbreak of avian flu (H5N1) in 2006, over 850 cases have been reported and

    approximately half of those cases resulted in death. The S&P 500 declined less than 1% one month after the outbreak and was higher by 10% six months after⁶.

In the 1950s and 1960s, two larger outbreaks occurred as well:

  • In 1957-1958, the “Asian flu” killed almost 70,000 in the US and was more lethal to younger generations than the coronavirus. The S&P 500 declined over 20% from July to October 1957 but finished the following year approximately 10% higher than pre-outbreak levels⁶.

  • From September 1968-March 1969, around 34,000 people in the US died from the “Hong Kong flu”, and the S&P declined by about 10% over this period. The market continued to decline in 1970 but returned to prior levels in early 1971⁶.

Where Do We Go From Here?

The data from prior outbreaks is illuminating and inferential, but not necessarily applicable to the current situation. Each and every crisis has its own idiosyncrasies and its own resolution. However, the important lesson is that all previous outbreak-driven crises ended, and over a relatively short timeframe. In the aftermath, economies recovered and markets rebounded.

COVID-19 presents its own set of difficulties, primarily the speed and breadth of transmission. The surprise in markets has been widespread and affected various types of assets, and the recent turmoil in oil markets has only added to fragile sentiment.

But it’s important to remember that markets move in anticipation of events to come and adjust as those events play out. Markets are currently pricing in a large drop in corporate profits⁵, which is possible. However, the long-term effects from this outbreak will drive the future direction of the markets. And as we’ve seen from prior episodes, surprise leads to panic, and panic leads to rapid price moves. But after the storm, this too shall pass.

Ryan Walsh, CFA® is an investment advisor representative of NWAM, LLC dba Northwest Asset Management and RIA Innovations, an SEC registered investment advisor. This publication is in no way a solicitation or offer to sell securities or investment advisory services. Statistical information, quotes, charts, references to articles or any other quoted statement or statements regarding market or other financial information is obtained from sources believed to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. All domestic and international rights are reserved. No part of this newsletter including text, graphics, et al, may be reproduced or copied in any format, electronic, print, et al, without written consent from Ryan Walsh, CFA® and RIA Innovations. Neither Ryan Walsh CFA®, nor RIA Innovations provide legal or tax advice. Please be advised to consult your investment advisor, attorney or tax professional before making any investment decisions. 

As of March 9, 2020. 


Smaller US stocks¹ – as represented by the Russell 2000 TR Index.
International stock markets² – as represented by the MSCI All Country World ex-USA Index.
Market performance statistics³ – sourced from Morningstar, 2020.
Coronavirus statistics⁴ – sourced from Worldometer, “COVID-19 Coronavirus Outbreak.”
SARS/Avian Flu statistics⁵ – sourced from Charles Schwab, “Immune: world epidemics and global stock market performance.” Asian Flu/Hong Kong Flu statistics⁶ – sourced from First Trust, “A Coronavirus Recession?”


Black Swan event – a surprise event that transpires with major effect and is often rationalized after the fact. Bear Market – a market decline of 20% or greater.

TBG Financial, LLC is a state registered investment advisor in the State of Washington and certain other states. This content is provided by a third party and may not necessarily reflect the expertise of this Advisor. This publication is not intended to provide investment advice and is intended for your information only. This publication is reprinted with the permission of NWAM, LLC dba Northwest Asset Management and RIA Innovations, an SEC registered investment adviser. NWAM, LLC is unrelated to TBG Financial, LLC.