Our rapid-response team at Yardeni Research first responded to the coronavirus outbreak in the Monday, 1/27 issue of our Morning Briefing, which was titled “Going Viral?” That was the next business day after the outbreak first hit the headlines on Friday, 1/24. Let’s review some of our initial assessments and the latest developments: (1) Panic attack #66 could be the one that causes a global recession and a bear market. In our 1/27 analysis, we suggested that the outbreak had the potential to be added to our list of 65 panic attacks since the start of the current bull market: “Will the coronavirus outbreak that started in the Chinese city of Wuhan, Hubei turn out to be just the latest panic attack that provides yet another buying opportunity for stock investors? Fears that it could turn
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(1) Panic attack #66 could be the one that causes a global recession and a bear market. In our 1/27 analysis, we suggested that the outbreak had the potential to be added to our list of 65 panic attacks since the start of the current bull market: “Will the coronavirus outbreak that started in the Chinese city of Wuhan, Hubei turn out to be just the latest panic attack that provides yet another buying opportunity for stock investors? Fears that it could turn into a pandemic knocked stock prices down last week, especially on Friday.”
The S&P 500 peaked at 3329.62 on Friday, 1/17. It then fell 3.1% through the last day of January. Joe and I added the outbreak to our list of panic attacks on 2/3 (Fig. 1).
The S&P 500 proceeded to rally 5.0% to a record high of 3386.15 last week on Wednesday, 2/19 (Fig. 2). It dropped on Friday of last week, 2/21, by 1.1%, and plunged 3.4% on Monday, 2/24, as reports showed that the virus was spreading globally, particularly to Iran, Italy, and South Korea.
It plunged again, by 3.0%, on Tuesday after an official at the Centers for Disease Control and Prevention (CDC) that day said Americans should prepare for COVID-19 to spread in their communities and cause disruption after Iran, Italy, and South Korea reported a rapid uptick in the number of people who have been sickened.
“We really want to prepare the American public for the possibility that their lives will be disrupted because of this pandemic,” Dr. Nancy Messonnier, director of the CDC’s National Center for Immunization and Respiratory Diseases, told reporters. She said that Americans should talk to their children’s schools about contingency education and childcare plans and discuss tele-working options at work if community spread is reported in the US.
When asked by a reporter on a conference call if her tone had changed compared to previous calls, the CDC official said: “The data over the last week and the spread in other countries has certainly raised our level of concern and raised our level of expectation that we are going to have community spread here ... That’s why we are asking folks in every sector as well as within their families to start planning for this.”
Messonnier said that she herself spoke to her family over breakfast on Tuesday, and that while she feels the risk of coronavirus at this time is low, she told them they needed to be preparing for “significant disruption” to their lives. (See the Fox News article “Coronavirus disruption to ‘everyday’ life in US ‘may be severe,’ CDC official says.”)
We have come to the conclusion that even if the virus turns out to be no more dangerous to global medical and economic health than previous outbreaks (as we still expect), extreme government responses aimed at containing the virus, while effective, may be creating a pandemic of fear, increasing the risk of a global recession and a bear market in stocks.
(2) To be contained. We expect the coronavirus outbreak to be contained, as the previous three major viral outbreaks were. SARS (2003-04), MERS (2012), and EVD (2014-16) all were contained using traditional public health measures—e.g., testing, isolating patients, and screening people at airports and other public places. Eight months after SARS began circulating, for example, the virus died out. A 2/18 LA Times article explains how SARS, which had reached 29 countries at its peak, suddenly disappeared. The seriousness with which governments and health organizations around the world are taking the coronavirus suggests its spread likewise will be minimized.
(3) People get sick. According to a Live Science article written last week (“How does the new coronavirus compare to the flu?”), the virus, officially “COVID-19,” infected more than 75,000 people and killed 2,000, primarily in mainland China. Not to minimize the suffering behind those numbers, in the US alone, the flu has already caused an estimated 26 million illnesses, 250,000 hospitalizations and 14,000 deaths this season, according to the CDC.
In the largest study of COVID-19 cases to date, China’s Center for Disease Control and Protection analyzed 44,672 confirmed cases and found 80.9% to be mild, 13.8% severe, and 4.7% (2,087) critical. They estimated the death rate at 2.3%; that’s much higher than the death rate from US flu cases, at around 0.1%—but both rates are extremely low. According to the article cited above, nobody under 10 years old has died of this coronavirus to date.
What’s unknown about the new virus is the problem. Nobody knows exactly how it will spread or how many serious cases will develop. “Despite the morbidity and mortality with influenza, there’s a certainty … of seasonal flu,” Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said in a White House press conference on 1/31, according to the Live Science article. The course of the flu is predictable, he said, down to the number of hospitalizations and mortalities to expect before cases drop off in spring. “The issue now with [COVID-19] is that there’s a lot of unknowns.”
(4) The asymptotic difference. Unlike with previous headline-making viral outbreaks, asymptomatic people can have and spread the new coronavirus; that’s less likely with the flu, which spreads mostly from persons with symptoms. Cases have been reported on every continent but South America and Antarctica, most recently in Europe, East Asia, and the Middle East, according to the CDC’s website.
A 2/24 article in The Atlantic quoted Harvard epidemiology professor Marc Lipsitch saying he doesn’t think COVID-19 will prove containable. His “very, very rough” estimate was that 100-200 people in the US were infected (versus 35 cases confirmed cases as of Sunday, 2/23), which would be enough to spread the disease widely. The article observed that Chinese scientists reported an apparent case of asymptomatic spread of the virus from a patient with a normal chest CT scan. If this finding is not a bizarre abnormality, the scientist stated, “the prevention of COVID-19 infection would prove challenging.”
(5) Will warm weather kill the virus? Might the coming warm weather months halt COVID-19’s spread? David Heymann of the London School of Hygiene and Tropical Medicine, who led the global response to the SARS outbreak in 2003, says not necessarily. The MERS coronavirus spread in Saudi Arabia during August, he pointed out. The flu might spread less readily in summer simply because people spend less time together in confined spaces in summertime, per a 2/12 NewScientist article.
Drug manufacturers are rushing to develop a vaccine. On Monday, drug maker Moderna delivered its first experimental coronavirus vaccine for human testing, with a clinical trial scheduled for April.
The bottom line is that we aren’t too afraid of the virus right now. While we are not virologists, our take is that there are two sanguine outcomes: (#1) the virus spreads to lots more people, but most cases are mild, and we learn to live with the threat; and/or (#2) public health efforts and less togetherness during warmer months cause the virus to die out.
(6) Fear going viral. More fearsome than the virus itself is the global contagion of fear it could spawn as governments continue to react with extreme measures and the media continues to hype the threat up. Governments’ responses have been drastic, as discussed in a 2/24 WSJ article; they include China’s quarantine of 60 million people in Hubei province, halting economic activity, and the US’ travel warnings and ban on entry of any non-American who has been to China in the past 14 days. As noted above, just yesterday, the CDC warned Americans to prepare for a severe disruption to everyday life in the US in the event of an outbreak here.
We hope that people soon will have good reasons to conclude, as we have for now, that this too shall pass.